Time - The American College

magazinePUBLISHED BY THE AMERICAN COLLEGE Fall | 2011retirementwon’t go awayStrategies you and yourclients can’t ignore

2011 President’s DinnerFriday, December 2, 2011Kick off the holiday season in grand style with a trip to our nation’scapital! Join us at the Smithsonian’s National Museum of AmericanHistory in Washington, DC, for the 2011 President’s Dinner. Enjoya black-tie gala surrounded by three million of our nation’s mostinteresting treasures, such as the Star-Spangled Banner, GeorgeWashington’s uniform, gowns worn by First Ladies, Evel Knievel’smotorcycle, Dorothy’s ruby slippers and much more. Benefit froma thought-provoking morning CE program, take a stroll aroundspectacular presidential and war memorials, or visit the NationalChristmas Tree—just don’t miss out on a very special President’sDinner!For information about the President’s Dinner,contact Mary Phelan at 610-526-1432 orMary.Phelan@TheAmericanCollege.edu

CONTENTS FALL2011UP front4 | From The Editor6 | President’s Viewpoint8 | Ask Al11 | Here’s the Caseretirement13 | What Everyone Should Know BeforeClaiming Social Security Benefitsby David A. Littell, JD, ChFC ® , CFP ® ,Kenn B. Tacchino, JD, LLM and Bruce D. Schobel, CLU ®18 | Healthcare Reform’s Effect on Medicareby Arthur Tacchino, JD, and James Woerheide21 | Running Out of Moneyby Tom Hegna, CLU ® , ChFC ® , CASL ®24 | Women and Retirement –Failing to plan = Planning to failby Mary Quist-Newins, CLU ® , ChFC ® , CFP ®28 | ESOP Company Retirement Incomeby Dickson C. Buxton, CLU ® , ChFC ®30 | Retirement Scorecard – Retirement Funds: 0Life Expectancy: Beyond My Incomeby Arthur D. Kraus, CLU ® , ChFC ® , CAP ®33 | Retirement Dreams Rearrangedby Mary Anne Ehlert, CFP ®36 | Retirement Chores for Seniors –Decisions, Decisions, Decisionsby Garry Kinder, CLU ®finance39 | Sense and Nonsense Regarding Distribution Portfoliosby Walt Woerheide, ChFC ® , CFP ® , Ph.D.43 | The Cost of a Good Night’s Sleepby Craig Lemoine, CFP ®47 | Does Your Portfolio Need a Shock Absorber?by Kevin Hogan, CLU ®301339insUrance49 | Retirement Security –It’s a whole new worldby Robert D. Shapiro, CLU ®51 | How to Make Asset-Based LTC InsurancePart of Your Practiceby Bruce Moon, CLU ® , ChFC ® , CASL ®estate PLanning53 | Farm Transition Planningand Retirement Planningby Donald G. Schreiber, JD, CLU ® , ChFC ®57 | Succession Planning for the Advisor –Selling a financial services practiceby Al Depman, CLU ® , ChFC ®61 | Ensuring Beneficiaries ReceiveIntended Assetsby Constance J. Fontaine, JD, CLU ® , ChFC ®DiaLogUe65 | Guaranteed Lifetime Income ProductsInterview with Catherine Weatherfordby Stephen D. Tarr, MSM, CLU ® , ChFC ® ,CAP ® , CASL ®

eDUcation97 | The Ethics of Dealing with Older Clientsby James A. Mitchell, CLU ® , ChFC ®98 | Mastering the Science of Financial Servicesby Glenn Boseman, DBA, CLU ® , CLF ®CONTENTS FALL2011Practice management68 | Perfection and the 7 Ironby Charles C. Jones, MSFS, CLU ® , ChFC ® , CAP ® ,CASL ® , AEP70 | Prospecting for Seniorsby I. David Cohen, CLU ® , ChFC ® , LUTCF71 | Grow Your Retirement and Businesswith Executive Benefitsby Albert J. “Bud” Schiff, CLU ® , CAP ®74 | Is That Your (Unintentional)Retirement Advice?by Michael E. Kitces, MSFS, CLU ® , ChFC ® , CASL ® , CFP ® ,RHU ® , REBC ®76 | Leadership Development – Why Take the Time?by Gerald Herbison, MSM, ChFC ® , CASL ® , CFP ® , CLF ®78 | Five Ways Advisors Can Use Wholesalersto Get to Their Own Retirementby Robert ShoreresearcH81 | Will Your Client’s Public Defined BenefitPension Plan Disappear?by Karen Eilers Lahey, Ph.D.84 | Women Need to Think Beyond Todayby Karen Wimbish86 | Evolving to Fee-Based Compensation inthe Retirement Plan Businessby Ken Cochrane89 | Supporting Retirement Income Clients:Key Insights for Independent Advisorsby Beth StellutotecHnoLogy91 | Have You Been to The Wealth Channel Online?93 | Getting Ready for Google Plusby Matt Henry95 | Doing More with Less – Using cheap technologyto increase productivityby Adam C. Pozek, RHU ® , REBC ®99 | TAC Knows Retirement Planning!by Allen McLellan, CLU ® , ChFC ® , CASL ® ,CFP ® , LUTCFtHe coLLege101 | Centers of Activity104 | Innovative New Program for ParaplannersaLUmni105 | From the Alumni Presidentby Jayne N. Schiff, CLU ® , ChFC ® , CAP ® , REBC ®and Alison Pettine, CLF ®106 | The 2011 Knowledge Summit –A Winning Eventby Eric B. Gordon108 | Faces of the Alumni110 | Alumni in Action112 | Living a Life of Significance113 | Edward Woods – First American Collegepresident and industry pioneerby Virginia E. WebbaDVancement116 | College Creating New Centerfor Veterans Affairsby Erin Gazica117 | Northwestern Mutual Establishes Centerfor Financial Security118 | A Superb Steward119 | An Unforgettable Donor120 | Looking for More Income That’s Secure?by Allen Thomas, JD, CAP ®121 | Planning for Final WishesregULations123 | Washington Surprise: A Glimmer ofAgreement in the Fiduciary Wrangle?by Keith Hickerson, MSM125 | Debt Reduction Roundupby David J. Stertzer, FLMI127 | CalendartHe Last worD128 | How to Best Serve and ProtectYour Senior Clientsby Chris Naylor

Check out these videos, articles, and so much more online atTheWealthChannel.com… 24/7/365.ONLINEwatcH tHese PowerfULViDeo-on-DemanD interViews atTHEWEALTHCHANNEL.COMLife Insurance LanguageMaria Umbach, CLU ® , Managing Principal, Insurance andFinancial Services, for Maddock Douglas, speaks with AssistantProfessor of Insurance, Glenn Stevick Jr., CLU ® , ChFC ® , LUTCF,about the buying attitude of the Gen Y consumer, and itspossible connection to insurance industry language.Buying Online – Agent Obsolete?Jon Dressner, Senior VP/Chief Creative Officer of the LIFEFoundation discusses with Assistant Professor of Insurance &Associate Dean Allen McLellan, CLU ® , ChFC ® , CASL ® , CFP ® ,LUTCF, the changes that have been taking place in life insurancebuying, specifically the ability for consumers to purchase directon the internet.Raising the Safe Withdrawal RateCertain adjustments can help clients raise the safe withdrawalrate and get more out of their retirement portfolios—JonathanGuyton, CFP ® , Principal, Cornerstone Wealth Advisors, Inc.,explains.Fiduciary Standard DeviationSenior Wealth Channel Correspondent Eric Gordon speakswith Keith Hickerson, MSM, Senior Strategy Consultant forThe American College about the discrepancies regarding thedefinition of a fiduciary and the possible consequences of legallychanging that definition.State of the IndustryLaurence Barton, CAP ® , Ph.D., President and CEO of TheAmerican College, talks to Joe Jordan, Senior Vice President ofBehavioral Strategies at MetLife about the current state of thelife insurance industry.Where There’s an “Un-Will,” There’s a WayJim Ruta, performance consultant to the financial servicesindustry, speaks with Professor Constance Fontaine, JD, CLU ® ,ChFC ® , about the decreasing emphasis placed on life insuranceand estate planning, and how the “un-will” can assist in puttinga spotlight back on this aspect of financial planning.NOW VIEWING:Wealth Channel OnlineJoin us every weekday for five minutes ofwhat truly matters—business-building insight.“Dance with the one that Brung ya”Christella Louis speaks to CBS News / 60 MinutesCorrespondent Byron Pitts about connecting to clientsthrough storytelling and achieving success inthe face of overwhelming personal hurdles.in tHis issUeWatch these Wealth Channel Magazine contributors discusstheir articles in-depth on TheWealthChannel.com:Craig Lemoine, CFP ® , discusses the relationship betweencost and retirement success.Ken Cochrane talks about the evolution of fee-basedcompensation for retirement planning.Gerald J. Herbison, MSM, ChFC ® , CASL ® , CFP ® , CLF ®describes the differences between effective managementand successful leadership.Mary Quist-Newins, CLU ® , ChFC ® , CFP ® , details fivefinancial risks that women face on the journey to retirement.Tom Hegna, CLU ® , ChFC ® , CASL ® , offers solutions forretirees worried about the longevity of their portfolios.Serving the needs of professionals, TheWealth Channel ® is the nation’s definitiveonline source of insight and knowledge intothe creation of financial security through thegrowth, protection and distribution of savingsand investments. This magazine, published byThe American College, is an extension of thatknowledge.scan this code to view the magazine online.You can follow us on Twitter by visitingTwitter.com/WealthChannel. Create an accountand receive regular Wealth Channel updates.

from the editor500 Miles an HourIt is a Tuesday night and I am in a aluminum tube flying 500miles an hour from NYC to Washington, D.C., on my wayback to Indianapolis. Where did all those non-stop flights go?I have been thinking a lot about the word “retirement,” primarily because it is ourfocus for the fall issue of the magazine. As I was waiting to board the plane, I caughtthis young correspondent from one of the major networks going on about targetfunds on an airport TV. She was sharing the benefits with millions of viewers and Ithought, How much does she really know about target mutual funds and their implicationsto viewers? She may have a degree in journalism, political science or perhaps even finance, but is sheknowledgeable about helping people of all ages with diverse cultural and social economic backgrounds? Isuspect the answer is a resounding no! Has she taken courses or spent years studying and learning like graduatesof The American College? I don’t think so. But there she was on that 50-inch flat screen giving advicewithout any idea what a particular viewer’s needs might be. That is just the opposite of what you do everyday as graduates of The American College! You work diligently helping families and businesses stay togetheror move into a planned transition by providing economic security. You help serve people on an individualbasis and not with a cookie-cutter idea for everyone. I applaud all of you who are part of the teams of caringpeople doing many varied tasks to reach and serve our communities, including leadership, those in IT, claimsand underwriting departments to mention but a few.I was also thinking about my friend and fellow American College graduate Margaret Bradshaw, CLU ® ,who recently passed away at 106! She was one of the most fascinating and magnetic individuals I have evermet. She lived a long and fruitful life with a marvelous sense of humor and great generosity toward others.How many clients think about providing the resources necessary to live into the triple digits? She did! Margaretoften commented on hearing Dr. Huebner speak early in her career, and how it made a lasting impressionon her because of his commitment and that of The College to high ethical standards and professionaleducation for those who serve in our industry.Which brings us to what this publication is all about—providing you with educational content that willhelp solve problems and offer sound advice! This is our biggest issue ever with more than 100 pages of practicalarticles by faculty and peers related to retirement that you can put to good use. Some of the topic areasinclude: distribution portfolios, the value of deferring Social Security benefits, succession planning, effectsof healthcare reform on Medicare, ESOP income, executive benefits, rearranging retirement plans, farmtransitions and how direct investments can be an economic shock absorber—to name just a few. I’m winded!So see how this content can apply to you and those around you, whether it is your mother-in-law Millie,or a best friend at 106! Knowledge makes us better at what we do and who we are. Don’t forget, you cantake us with you everywhere! How you say? Well, the new mobile version of The Wealth Channel Magazineis available for iPad and iPhone. Just go to the app store and type in “The Wealth Channel” for your FREEdownload of the magazine. You also can take advantage of some special video features of those who wrotethe articles. You’ll be joining more than 3,000 other graduates and friends who already want us with them24 hours a day—which is great because Alice (my wife) sure doesn’t want me around that much!Until next time...4 | The American College | FALL 2011

RELEVANT INDUSTRY PUBLICATIONHaving just read the Spring 2011 edition of The WealthChannel Magazine for the fourth time, I congratulateall of the editors involved with the production of oneof the best issues of ANY publication in our industryI have read in years. The content is so relevant to ourbusiness and the topics could not be more importantto your readers. Magnificent job. Keep them coming!David B. Cole, CLU ® , ChFC ®President, Retirement Income Resources, LLCFairfield, CTGOING MOBILEHOW TO REACH USE-MAIL:WCM@TheAmericanCollege.eduPHONE: (610) 526-1477FAX: (610) 526-1545ADDRESS:Attn: The Wealth Channel Magazine270 S. Bryn Mawr AvenueBryn Mawr, PA 19010ON THE WEB:TheAmericanCollege.eduTheWealthChannel.comI’d like to congratulate you and your team for publishinga first rate magazine full of valuable insights, greatprofiles and information that agents and advisors, aswell as field leaders, can use to grow their businesses.I have enjoyed receiving and reading the magazinesince its inception.I especially want to congratulate you on “going mobile”with The Wealth Channel Magazine. The generationthat comprises your and our future membershipmay inadvertently help the planet save some trees byliving on their PDAs and iPads.The College, under Dr. Barton, has been a learningorganization innovative juggernaut and GAMA International’sprofessional Staff and Board are proud to bepartners with and learn from this great institution.Best Wishes for continued success with the magazineand the Wealth Channel.Jeff J. HughesGAMA InternationalPresident and CEOLaurence Barton, CAP ® , Ph.D.Editor-in-ChiefStephen D. Tarr, MSM, CLU ® , ChFC ® , CAP ® , CASL ®Managing EditorAlison Pettine, CLF ®ContributorsGlenn Boseman, DBA, CLU ® , CLF ®Dickson C. Buxton, CLU ® , ChFC ®Ken CochraneI. David Cohen, CLU ® , ChFC ® , LUTCFAl Depman, CLU ® , ChFC ®Mary Anne Ehlert, CFP ®Marcia EllettConstance J. Fontaine, JD, CLU ® , ChFC ®Al Fry, MSM, MSFS, CLU ® , ChFC ® , RHU ® , REBC ®Erin GazicaEric B. GordonTom Hegna, CLU ® , ChFC ® , CASL ®Matt HenryGerald Herbison, MSM, ChFC ® , CFP ® , CASL ® , CLF ®Keith Hickerson, MSMKevin Hogan, CLU ®Charles C. Jones, MSFS, CLU ® , ChFC ® , CAP ® , CASL ® , AEPGarry Kinder, CLU ®Michael E. Kitces, MSFS, CLU ® , ChFC ® , CFP ® , CASL ® , RHU ® , REBC ®Arthur D. Kraus, CLU ® , ChFC ® , CAP ®Karen Eilers Lahey, Ph.D.Craig Lemoine, CFP ®David A. Littell, JD, ChFC ® , CFP ®Allen McLellan, CLU ® , ChFC ® , CASL ® , CFP ® , LUTCFJames A. Mitchell, CLU ® , ChFC ®Bruce Moon, CLU ® , ChFC ® , CASL ®Chris NaylorAdam C. Pozek, RHU ® , REBC ®Mary Quist-Newins, CLU ® , ChFC ® , CFP ®Albert J. “Bud” Schiff, CLU ® , CAP ®Jayne N. Schiff, CLU ® , ChFC ® , REBC ® , CAP ®Bruce D. Schobel, CLU ®Donald G. Schreiber, JD, CLU ® , ChFC ®Robert D. Shapiro, CLU ®Robert ShoreMark Stamper, CLU ® , ChFC ®Beth StellutoDavid J. Stertzer, FLMIArthur Tacchino, JDKenn B. Tacchino, JD, LLMAllen Thomas, JD, CAP ®Virginia E. WebbCheryl Wilson, ChFC ® , CFP ®Karen WimbishJames WoerheideWalt Woerheide, ChFC ® , CFP ® , Ph.D.DesignFALL Stephanie 2011 | The Ottavan Wealth Channel Magazine | 5Door No. 3 Design, Inc.

president’s viewpointThe Ghost of A. L.Williams Is Alive and WellMartin is a licensed agent with Primerica. Eventhough we have been friendly for over 30 years,Martin and I inevitably disagree, in just about everyconversation, about what constitutes a financialplanner. Here’s a sample from last week:Martin: “We have a big push on to sell variable annuitiesand mutual funds. We sold out our annualmeeting—we had more than 40,000 attendees.It’s like a Tupperware convention, so much excitement.”Larry: “Sounds like quite the event. Did they haveany outside speakers, or do they ever talk about encouragingpeople to take courses or designations?”Martin: “We don’t do much of that. Our trainingdepartment does it all. It’s one stop, including CE.We really don’t suggest continuing education fromanyone outside—it pollutes our focus.”Larry: “It pollutes your focus to take an LUTCFcourse, or maybe an accredited course on any College?”Martin: “Absolutely. Look, we’ll hire thousands ofregistered reps this year. It usually costs $99 to joinPrimerica, but we’re reducing it to $50 because somany people are out of work and need a job. We’rea great place to get started. We do the backgroundchecks, license, train and unleash them within severalweeks. It’s efficient.”Larry: “Hold on, cowboy. How many do you retain?”Martin: “Well, we don’t release those numbers, butit’s pretty good if they sell a policy or two in the firstyear. Now that we’re affiliated with Mellon Bank,we’re expanding into mutual funds in a huge way.”Larry: “Martin, did they give you any specialized,mandatory education about mutual funds? I mean,it’s one thing to be an investor yourself, but howcan you give counsel on mutual funds if you arenot properly educated on risk tolerance, ETFs anddozens of other details that are unique to mutualfunds?”Martin: “That’s why we have Mellon’s people behindus. We cue up the client, and Mellon does therest. But everyone we’re hiring knows mutual funds;most of them own them, so they have a good start.”Now, I have no doubt that Martin believeswholeheartedly in what he is saying. But what doesthis say about financial planning in our society?Here is a clear test of a financial services professional.“Is this man or woman one you would recommendto your aging mom or dad?” Our Founder,Dr. Solomon Huebner nailed it in The College’sprofessional pledge back in 1927 when he askedevery graduate “to render that service which, inthe same circumstances, I would apply to myself.”Should you or a member of your family purchasea product from someone who has only completedminimal training? I don’t think so.For further insight, I spoke with legendaryGuardian general agent, Alan Press, CLU. Just lastyear, working diligently and methodically, Alanhelped shed light on some of Primerica’s sales practices.Primerica’s website talks about its philosophy ofencouraging families “to purchase affordable termlife insurance.” Yet when Alan compared Primer-6 | The American College | FALL 2011

ica’s annual premiums to the average charges from 10 competingcompanies, Primerica’s premiums were less affordable. Alan played apivotal role in exposing questionable sales and pricing models whenPrimerica was led by Mr. A.L. Williams. Although the companychanged its name, don’t kid yourself—Mr. Williams is alive and wellin leading that orchestra. Check their website to see how prominentother Williams names are in the chorus.Companies who use questionable sales tactics and who unleashfinancial advisors with only marginal training only encourage increasedregulation by Congress. That’s why Congress has begun tolook hard at the standards for what constitutes an insurance agentand financial planner.Insurance agents, already among the most regulated professionalsin any field of endeavor, pursue the Chartered Life Underwriter ®(CLU ® ), Chartered Financial Consultant ® (ChFC ® ), Life UnderwriterTraining Council Fellow (LUTCF) and other designationsbecause they understand that rigor, testing and depth is what differentiatesthem from someone who claims they can solve all ofyour problems in 15 minutes or less (think Geico and Progressive).Unfortunately, most consumers are still clueless—CPA, ChFC ® ,CFP ® —it’s all an alphabet soup as far as they’re concerned.That’s why your College, at 84 years young, is relentless in standingtall for your designations and degrees. We don’t have a monopolyon quality, but we do have the most talented faculty of specialistsin insurance, behavioral finance, retirement, women’s studies andbusiness ethics in the country. We don’t have the resources to spendnine million dollars annually to promote your designations like theCFP ® Board of Standards, but we’re making marketing headway everyyear. And we need your support through joining your AlumniAssociation, considering a donation to our Foundation to honorour founder, Solomon S. Huebner, and encouraging others to studywith The American College.As you saw earlier, Primerica is now turning their attention toasset management and throwing the respected name of Mellon intothe sales mix. They’re playing with fire, and I hope that all of us, asbusy and distracted as we may be, keep an eye on them. It is up to allof us who care about the integrity of the financial services industryto remain vigilant and committed to the proposition that consumersare best served by individuals who have completed rigorous credentialsand are ethical in every regard.Very truly yours,The Wealth Channel Magazine© Copyright The American CollegeBoard of Trustees 2011. All rights reserved.This publication is a service to the alumni and friendsof The American College, and is intended for a professionalaudience. The content of this magazinemay not be copied or reproduced without the writtenconsent of The American College. The WealthChannel Magazine and the content therein are notlegal or tax advice. Always consult an attorney or taxadvisor. The opinions expressed in this publicationreflect the views of the author and not The AmericanCollege, The American College Alumni Association,the editors, publishers or any other party. TheAmerican College and this publication’s editors arenot responsible for any errors or omissions printed inthis publication.The marks CLU ® , ChFC ® , CASL ® , CLF ® , CAP ® , REBC ®and RHU ® are the property of The American Collegeand may only be used by individuals who have successfullycompleted the initial and ongoing certificationrequirements for these designations.Certified Financial Planner Board of Standards Inc.owns the certification marks CFP ® , CERTIFIED FI-NANCIAL PLANNER and CFP ® (with flame logo) ®in the U.S., which it awards to individuals who successfullycomplete CFP ® Board’s initial and ongoingcertification requirements.Laurence Barton, CAP ® , Ph.D.President and CEOFALL 2011 | The Wealth Channel Magazine | 7

ask alby Al Fry, MSFS, MSM, CLU ® , ChFC ® , RHU ® , REBC ®Beneficiary Arrangements Gone AwryAl Fry, MSM,MSFS, CLU ® ,ChFC ® , RHU ® ,REBC ®Al was a nationalplanning specialistfor LincolnFinancial Groupfor more than30 years, andcurrently has hisown consultingpractice.alfry@e-csi.comHopefully, none of these nightmares ever happened with any of your clients. However, as an advisorto agents and advisors over many years, I could fill a book with situations that created a hornet’s nestafter a client’s death. Here is just a brief sampling of those situations.My client’s single father recently died with a large 401(k), which was to go to my clientand her sister. The problem is his ex-wife (not my client’s mother) was named as primarybeneficiary (bene), with the girls as contingent benes. What can we do?Often, an advisor will be adamant about the proper structure of a product or arrangement he or sheworked on without checking out the client’s other arrangements. In this case, it would have requireda referral to the father prior to his death. Fortunately, the federal court intervened and looking to statelaw, ruled that the ex-spouse was not entitled to Dad’s 401(k). After paying attorney fees, the sistersshared the balance of the 401(k) proceeds, because they were sole heirs to the estate and contingentbeneficiaries of the 401(k).A recent client of mine just died and there was no bene named on his IRA. How do wedetermine who will get the IRA proceeds?How did this happen? Is your E & O insurance paid up? Fortunately, many IRA documents containa default beneficiary arrangement clause that will determine the benes. However, if there is no suchclause, or if there are no such benes, premature taxation may result.My client with three children died one day prior to his much older, wealthy aunt’s death.Auntie’s original intent was that her estate would be shared equally with my client, hissingle (no children) brother and my client’s three children. Now it appears that only onechild and the brother will split Auntie’s estate 50-50. How could this have happened?Upon further review, there were two detrimental flaws in the aunt’s will. First of all, distribution of theestate was “share and share alike.” That eliminated the client, because he preceded his aunt in death.A “per stirpes” arrangement could have solved that problem. Per stirpes means per branch. If one ofthe primary heirs or beneficiaries predeceases the insured or estate owner, that heir’s issue will stepinto their place as the beneficiary or heir. Auntie never expected any of her heirs to predecease her.The second flaw was that the client’s children originally meant to inherit her estate were those underage 18 and unmarried. However, at the time of Auntie’s death, one daughter was unmarried and age17; her twin sister was married, and her brother was 21 and married. That meant the client’s brotherand one daughter shared the aunt’s estate. Perhaps this was what Auntie desired, but I doubt it. Thisshows the importance of periodic reviews along with referrals to relatives. Of course, this situation wasfurther complicated with the problem of the unmarried daughter trying to equalize the distributionwith her siblings (which she was under no obligation to do).8 | The American College | FALL 2011

HAVE A QUESTION? To ask Al, visit TheAmericanCollege.edu/askAl.My divorced client was just killed in an accident. She did not want her ex-husband to getcontrol of the proceeds of a recently purchased life insurance policy and her IRA, so shenamed her minor children the direct benes. Was this the best arrangement?No, for several reasons. First of all, the ex-husband will more than likely be named as guardian, whichmeans the funds will be under his control. As guardian over the proceeds, he will, however, have toprovide annual accounting. Of course this will be an added expense, which will probably be paid out ofthe proceeds. A better choice, depending on the amount, may have been a trust with either a corporatetrustee or trusted friend or relative as trustee. For smaller amounts (check with IRA custodian and/orinsurance carrier for their and state law limits), the state’s Uniform Transfer to Minors Act (UTMA) mightbe a good fit. Under the UTMA, the client could name any trusted friend or relative (sister, mother, aunt,best friend) as Custodian FBO of the Children. At each child’s age of majority (18 in most States) theywill gain control of their share of proceeds. Establishing a separate account for each child will probablybe required.My client recently had his attorney set up a Testamentary Trust for his family. An advisor hemet in a bar told him to make sure his life insurance bene was changed to his estate so itwould go to the trust. This doesn’t sound right. What should he do?If he sees the other advisor again, he should buy him a beer if he promises not to give him any more advice!Naming the estate the bene on a life insurance policy could subject the proceeds to state income taxes insome states. There may be other adverse consequences, as well, such as probate. Anything the client wantsto go to the trust should be made payable to the trust. Some may ask, “How can things be payable to atrust that does not yet exist?” Keep in mind that the trust will be established at the client’s death (that iswhat testamentary means). Suggested wording for the insurance bene would be “Trustees of the John DoeFamily Trust under the Last Will and Testament of John Doe.” Some carriers/custodians may require thedate of the will. However, this would require an update anytime the will is updated, revised or replaced.Note: Normally deferred annuities should not be payable to a trust. To do so would cause immediatepayout and taxation.Based on another’s advice, my client changed her 401(k) beneficiary to her Revocable LivingTrust (RLT). He told her that her husband would still be able rollover her 401(k) to his ownIRA, if that’s what he wanted to do. Does this make any sense?No, it does not! Did she meet this other advisor in a bar, by chance? If she wants her husband to haveaccess to the 401(k), including the right to rollover to his own IRA, he should be the primary bene, nother RLT. The RLT could be named contingent bene, in case the husband wants to disclaim some part ofor the entire 401(k).With just a few examples, we can see that one’s estate plan and distribution desires can be greatlycomplicated and possibly undone by improper structure. We need to be sure to review the structureof all of our clients’ assets. We also should do our best to get referrals to their ascendants and collateralascendants.FALL 2011 | The Wealth Channel Magazine | 9

Global Issues. Local Impact. Personal Growth.Join The American College’s President Dr. Larry Barton, CAP, ® as he hosts these top thought leadersas they bring you the latest developments in the industry and Your College.To register, please call 610 526-1477 or go to TheAmericanCollege.edu/Tour2011Dallas, TXEmbassy Suites, Dallas-FriscoThursday, November 10, 2011 10am – 2pmPhil Cubeta, CLU, ® ChFC, ®MSFS, CAP ®Sallie B. and William B. Wallace Chair inPhilanthropy, Assistant Professor ofPhilanthropy, The American CollegeCharitable Planning from YourSeat to the TableGib Surles, CLU, ® ChFC, ® CFP, ®MSFSPresident, AALULegislative and RegulatoryEnvironmentJohn Oliver, ChFC, ® CLU, ®CAP ®Vice President of Field Development,Transamerica/AEGON USA, Inc.Selling Life Insurance in aTurbulent EnvironmentWashington, DCJW MarriottFriday, December 2, 2011 10am – 2pmQuincy Krosby, PhDChief Marketing Strategist,Prudential AnnuitiesEconomic and Market OutlookAllen McLellan, LUTCF, CLU, ®ChFC, ® CASL ®Associate Dean of Academics, AssistantProfessor of Insurance, The American CollegeRegulatory EnvironmentTimothy Radden, CLU, ® ChFC ®Financial Advisor, Northwestern MutualSecuring the Future…Living theDreamPanel Discussion• Allen McLellan, LUTCF, CLU, ® ChFC, ® CASL, ®Assistant Professor of Insurance, The American College• Lee Bethel, CLU, ® ChFC, ® REBC, ® RHU, ® CAP, ® ChHC, ®President of Comprehensive Benefit Services• Jeffrey Hughes, CEO of GAMA• Frank Kelly III, LUTCF, RHU, ® REBC, ® CLU, ®CEO of Kelly & Associates Financial Services Inc.• Mel Schlesinger, RHU, ® REBC, ®President of NAHU

HERE’S THE CASEIn this regular feature, WCM presents a case to twotop producers. We ask the producers to considerthe best possible advice given their own assumptionsabout the scenarios, and to include some ofthe challenges they may face trying to implementtheir recommendations and some alternatives.You can provide your own responseto our cases and view whatothers are saying at thewealthchannel.com/heresthecase.Be apart of the action and tell us howyou might advise these clients.THE SCENARIOSondra is currently age 60, single (divorced after a 15-year marriage), with one adult child and two grandchildren.She is a marketing manager currently earning $100,000 a year. She has accumulated $400,000 in a 401(k) plan andis contributing 6 percent to the plan each year. The company is matching 3 percent and contributing an additional2 percent of pay (a total employer contribution of 5 percent) to the plan. In addition, Sondra has $50,000 in taxablemutual funds and $25,000 in cash. She has 80 percent of her 401(k) and her taxable mutual funds invested in equities.She does not have a defined benefit plan or any other source of retirement income. She owns a home with a currentmarket value of $300,000, and she has 10 years remaining on her mortgage of $1,300 a month. Her goals are to retireat age 66 with an $80,000 a year income (80 percent of current earnings). For estimating her Social Security benefits,note that she only has 25 years of employment history, and her ex-husband always earned more than the taxable wagebase. She is not planning to work at all in retirement. She would also like to leave an inheritance to her adult child ofat least $250,000.ANALYSIS ONE: CHERYL L. WILSON, ChFC ® , CFP ® , USAA WEALTH MANAGEMENTBased on her current savings strategy and asset allocation, it is not very likely Sondra will achieve her stated goal of$80,000 in retirement income if she retires at age 66 and would like to leave a legacy of $250,000 for her child.Although the case does not state the age of her ex-husband, an estimate of the benefits she would is $1,531/monthbased on 50 percent of his benefits if they are the same age and he also works to FRA. To meet her retirement incomegoal of $80,000, this would mean Sondra would need to withdraw $61,628 from her investments.Additional discussion is needed around her risk tolerance, but based on the facts presented in the case I wouldrecommend a more moderate asset allocation given her time horizon and income needs. Based on the 30-year returnsfor USAA’s moderate asset allocation model, Sondra might assume a 9.8 percent growth rate. Given 6 years and$11,000 in annual contributions, her portfolio would be worth $704,100 at retirement. The $61,628 would represent an8.75 percent withdrawal rate, well above what is considered to be sustainable.My recommendation would be to delay retirement until age 70 when her mortgage is paid off. This would reduce theannual needs and also provide for greater accumulation in her investments due to growth and addition contributions.At age 70, her accounts are assumed to be at $845,147 for the 401(k) and $127,348 for her taxable mutual funds for atotal of $972,495. A more sustainable 5 percent withdrawal rate would provide $48,624 annually.An additional benefit of delaying retirement to age 70 would be to increase the number of years in the Social Securitysystem to 35 so it may increase the benefit she would be entitled to. At this point, we do not have enough informationto determine her exact benefit.However, by reducing the needed income since the mortgage is paid off to $64,400 and showing the Social Securitybenefit at $18,372, the 5 percent withdrawal of $48,624 would cover her remaining expenses.We are not given information regarding her health, but if the legacy of $250,000 for her child is extremely important toher, I would recommend a life insurance policy.FALL 2011 | The Wealth Channel Magazine | 11

HERE’S THE CASEANALYSISANALYSIS TWO: MARK STAMPER, CLU ® , ChFC ® , EXECUTIVE DIRECTOR, FINANCIAL PLANNING, USAAassumptions: In order to evaluate her situation we need to make several assumptions, which are outlined below.Risk Tolerance: Moderately Aggressive (based on current allocation)Inflation on Income: 3 percentRate of Return on Investments: 8 percentRate of Return on Cash: 1 percentRate of Return on Home Value: 3 percentSS Income Sondra: $28,000 (this will be higher than taking half of ex-husband’s benefit)Projected value of accounts at retirement: 401(k): $800,516.00Mutual Fund Account: $55,540.00Cash Account: $53,076.00Net Worth: 401(k): $400,000.00 Mortgage: $122,500Mutual Funds: $50,000.00 Total Liabilities: $122,500Cash: $25,000.00Home: $300,000.00total assets: $775,000.00 net worth: $652,500emergency reserve: In order to establish a proper emergency reserve we recommend that she set aside six months worth ofexpenses equal to $40,000. We recommend funding this by moving $15,000 from her mutual fund account and into the cashaccount.retirement income: Social Security: $28,000Investment Income: $68,484Total Income: $92,041Desired income: $80,000The calculation for investment income was derived by taking her current 401(k) balance, increasing it based on futurecontributions and an assumed growth rate of 8 percent and calculating the balance at retirement. We then added this toher mutual fund account. The total was then assumed to produce income based on rate of return of 8 percent per year.Academically, this is how the calculation would be made. However, in practice we would run a Monte Carlo Probability analysiswhich would indicate that the likelihood of this withdraw rate being sustainable for her lifetime to be very low. In reality, awithdrawal rate of 4 percent or less would be more realistic. With a 4 percent withdrawal rate this would leave her with a$20,000 income shortage. We would discuss strategies to accelerate paying off her mortgage during her working years, savingmore, decreasing her expenses, or working longer in order to help her achieve her goal. As a last resort, she could considerusing a reverse mortgage on her home to help her meet her income needs later in retirement. Since a majority of her incomeis coming from one source, she should consider the use of a single premium immediate annuity to provide a higher level ofguaranteed income.inheritance: Currently, her net worth is sufficient to leave her child $250,000 in inheritance. Forgoing any unforeseencircumstances she should be able to meet this goal. We advise her to ensure that her beneficiary designations on her 401(k)are up to date to name her child as beneficiary. Additionally, she needs to be sure her will is updated to name her child asbeneficiary of her cash account, mutual fund account and home. Alternatively, she could register her cash and mutual fundaccounts as transfer on death, or utilize a revocable living trust.Her inheritance goal could be in jeopardy if she were to face significant healthcare costs, therefore she should considerpurchasing a long-term care policy. Alternatively she could use life insurance to provide a low-cost, tax-free benefit to herchild, assuming she’s insurable.

Section Contents: Healthcare Reform’s Effect on Medicare 18 Running Out of Money 21 Women and Retirement 24 ESOP CompanyRetirement Income 28 Retirement Scorecard 30 Retirement Dreams Rearranged 33 Retirement Chores for Seniors 36retirementWhat Everyone Should Know BeforeClaiming Social Security Benefitsby David A. Littell, JD, ChFC ® , CFP ® , Kenn B. Tacchino, JD, LLMand Bruce D. Schobel, CLU ®> 10 important points in deciding whether or not to begin claiming Social SecurityDavid A. Littell, JD,ChFC ® , CFP ®Dave is the JosephE. Boettner Chair inResearch and Co-Director of the NewYork Life Center forRetirement Incomeat The AmericanCollege.david.littell@TheAmericanCollege.eduKenn B. Tacchino,JD, LLMKenn is Professorof Taxation andFinancial Planningat WidenerUniversity and Co-Director of the NewYork Life Center forRetirement Incomeat The AmericanCollege.kenn.tacchino@TheAmericanCollege.eduBruce D. Schobel,CLU ®Bruce is VicePresident & Actuaryat the New York LifeInsurance Company.bruce_schobel@newyorklife.comBecause nearly two-thirds of retireesreceive more than half of theirincome from Social Security, therecan be no doubt that the choice ofwhen to claim benefits is one ofthe most important financial planningdecisions a client can make.Yet there is clearly a disconnectbetween what clients are doingand what clients should be doing.Much of the recent research in thisarea has focused on one of threereasons why deferring benefits maybe beneficial: 1) a cost efficient-way to generatemore guaranteed income; 2) a way to address therisks of inflation and longevity; and 3) a strategyfor leaving potential widow(er)s in better financialshape. Unfortunately, according to Henry J.Aaron and Jean Marie Callan of the Center forRetirement Research at Boston College, in theirresearch report working paper “Who Retires Early,”beneficiary claiming behavior doesn’t seem tohave caught up with the research, as a vast majorityof beneficiaries claim Social Security benefitsprior to full retirement age (more than halfclaim at age 62), and only 1.5 percent wait untilage 70 to begin benefits. One probable reasonfor this is a lack of understanding by clients oftheir benefit options and the implications of theirclaiming decisions. To help retirees make betterdecisions, here are 10 key points that everyoneshould know.In retirement, everyone willhave to plan to meet basicexpenses for an entire lifetime,and these expenses willincrease with inflation.1. replace pre-retirement incomeWith most Americans struggling to afford retirement,deferring Social Security benefits can bethe simplest and most effective way to improveretirement security. A retirement income planrevolves around replacing lost earnings, and thelonger Social Security benefits are deferred (atleast up to age 70), the higher the percentage ofpre-retirement earnings replaced by Social Securitybenefits. Take, for example, a married couple.Both are currently age 61 and each earns $60,000a year. Using Social Security’s Quick Calculator(ssa.gov/oact/quickcalc), if they both begin worker’sbenefits at age 62, Social Security replaces 23percent of the couple’s $120,000 income, 32 percentat 66 and 45 percent at age 70, assumingthat they continue to work until benefits begin.(Note that if the individual stopped working earlier,for example age 62, and defers benefits untillater, the replacement rate at 66 and 70 will gen-FALL 2011 | The Wealth Channel Magazine | 13

etirementerally be somewhat smaller, because averageearnings are likely to be lower.) The sameresult would occur with a single personearning $60,000. The replacement rates(at all claiming ages) are higher for marriedcouples with a single wage earner becauseof the additional spousal benefit paid onthe same earnings. At the very least, beforemaking a claiming decision, be sure to convertestimated monthly benefit amounts atdifferent claiming ages into replacementrates. When estimating benefits, it is importantto consider accurate assumptionsabout whether one plans to stop working prior to receivingbenefits or will continue to work until benefits begin, and theIRS has several online calculators for estimating benefits. Evenbetter, make a comprehensive retirement income plan first,and then make the claiming decision in the context of thatcomprehensive plan.2. lock in a way to pay for basic expensesIn retirement, everyone (regardless of income) will have toplan to meet basic expenses for an entire lifetime, and theseexpenses will increase with inflation. Social Security providesan inflation-adjusted annuity guaranteed by the government,and payable for life. Cost-of-living adjustments (COLAs) areapplied to an individual’s monthly benefit. COLAs are tied tothe consumer price index for urban wage earners and clericalworkers (CPI-W). COLAs are effective with monthly benefitsfor December, which are normally paid in January.With fewer retirees eligible for guaranteed income fromcompany pensions today, Social Security is often the onlyavailable source of guaranteed lifetime income. Deferring SocialSecurity means a higher guaranteed benefit and a higherproportion of retirement income receiving cost-of-living increases.Additional annuity income can be purchased, butcommercial annuities will either provide no inflation protectionor limited protection for a significant additional price.Note that commercial annuities with inflation protection tiedto CPI increases will generally cap annual inflation increases tolimit the risk to the insurance company. Other products offera stated increase (such as 3 percent) each year and are not tiedto the CPI. Also note that research has shown retirees withgreater amounts of guaranteed income show more satisfaction,worry less and show fewer signs of depression, according to W.Canstantijn and A. Panis in their “Pension Research CouncilWorking Paper (2003-19).” Increasing guaranteed incomethrough deferring Social Security may be good for your health!For those worried about makingends meet in retirement, a better wayto frame the question is: “What isthe least expensive way to increaseguaranteed lifetime income?”3. get the most from the systemEveryone wants to get the most bang for their buck from SocialSecurity. Some believe that the best bet is to take early becausethey won’t get their money’s worth unless they live a long life.Essentially, this is betting on dying young—a bad gamble—aslosing means living a long life with too little income. For thosewho are worried about making ends meet in retirement, a betterway to frame the question is: “What is the least expensiveway to increase guaranteed lifetime income?” Given the highcost of a commercial annuity that offers inflation and survivorprotection, deferring Social Security may very well be thelowest-cost way to accomplish this goal. There will be somewealthier individuals well funded for retirement who will focusmore on the expected present value of lifetime benefitsassuming different benefit start dates. Even though the SocialSecurity system is designed so that individuals will receive approximatelythe same expected present value for retirementbetween ages 62 and 70, there is a major exception to thisrule. Because of the widow(er) benefit, married men living theaverage life expectancy who retire and begin benefits early willreceive a smaller present value than if they defer, according to“When Should Married Men Claim Social Security Benefits?”by Sass, Sun and Webb of the Center for Retirement Researchat Boston College (Issue Brief #8-4, March 2008). A breakevenanalysis does underscore an important point: A personin bad health at retirement with a short life expectancy shouldprobably claim early. However, caution is advised because amarried person taking early may leave the widow(er) with apermanently reduced benefit. Break-even analysis also wouldsuggest that a longer-than-average life expectancy weighs infavor of deferring, and those with more education and incomehave longer life expectancies than average, according to theCongressional Budget Office in “Growing Disparities in LifeExpectancies,” (Economic and Budget Issue Brief, April 17,2008).14 | The American College | FALL 2011

4. consider futurechanges in social securityFuture changes in Social Security areappropriate to consider in a claimingdecision, but don’t think that becauseSocial Security anticipates futurefinancing problems that claimingearly is always the best choice.There will be changes, but benefitsare not likely to be modified for currentretirees and those close to retirement.Social Security is just tooimportant to the retirement securityof seniors, and its financial problemsare solvable with reasonable modificationsto the program.5. understand benefitsIt’s important to understand the impactof claiming benefits at differentretirement ages for both the worker’sand spousal benefit.• Worker’s benefit: Workerswho claim benefits at fullretirement age (which iscurrently age 66 and risesgradually to age 67 for thoseborn after 1959) receive abenefit that is 100 percentof what is called the primaryinsurance amount (PIA). Benefits can begin as early asage 62, but beginning before full retirement means apermanent reduction based on the number of monthsthat benefits begin prior to full retirement age. (Note:The early retirement reduction is 5/9 of one percentfor each month up to 36 months and 5/12 of onepercent for each additional month that benefits beginprior to full retirement age.) At 62, for example, aperson with a full retirement age of 66 receives abenefit of 75 percent of PIA. On the other hand,claiming after full retirement age results in an 8 percentincrease for each full year retirement is delayed, up toage 70. With a full retirement age of 66, an individualwaiting until age 70 to claim earns 132 percent of thePIA. Because the delayed-retirement increase stopsat age 70, there is no advantage to further delayingbenefits beyond age 70.• Spouse’s benefit: Once a worker has claimed benefits,a lower-earning spouse is entitled to a spousalretirement benefit at full retirement age of 50 percentof the worker’s PIA. The spousal benefit is alsoavailable as early as age 62, but again will be subjectto an early-retirement reduction. The reduction istied to the spouse’s (and not the worker’s) age whenbenefits begin. Spousal benefits cannot begin until theworker has claimed benefits, but workers are allowedto claim and then suspend once they have attainedfull retirement age (without receiving any benefits)to trigger eligibility for spousal benefits. It’s alsoimportant to know that spousal benefits are not eligiblefor a delayed-retirement increase if benefits begin afterfull retirement age, meaning that there is no reasonto defer spousal benefits beyond full retirement age(currently, age 66).FALL 2011 | The Wealth Channel Magazine | 15

etirement6. be prepared for benefitsafter the death of a spouseWith a retired married couple both receiving benefits, therules that apply after one spouse dies are complex, but theconcept is simple. After the first death, the amount the survivingspouse receives is the larger of the two retirement benefitsthat the couple was receiving. The first implication of this ruleis that total benefits received by the household are reduced,which needs to be factored into the retirement income plan.The second implication is that the claiming age of the higherwage earner has an impact on the benefit payable to the survivingspouse. In other words, the spouse inherits the higherwage earner’s decision to take early or late. For example, Joe,the higher wage earner, is 62, and his wife, Sally, is 58. If Joeclaims at 62 he receives a benefit of 75 percent of PIA. Becausehis wife is younger and women generally live longer, Sally maybe saddled with the reduced benefit for many years, endangeringher financial health. On the other hand, if Joe deferredto age 70, he would receive 132 percent of his PIA and Sallywould inherit the much higher benefit.7. know how earningsaffect the worker’s benefitSocial Security benefits are based on the average of the highest35 years of earnings capped at the taxable wage base eachyear ($106,800 in 2011). Earnings before age 60 are indexedfor inflation, so older earnings reflect real earnings today. Anindividual with fewer than 35 years of covered earnings willgenerally benefit the most by working more, as those additionalyears of earnings would replace zeroes in the average.Also, note that employment earnings from continuing towork increase the calculation of average earnings and thereforeincrease benefits, even if benefits have already begun. The SSAautomatically recomputes the PIA every year for beneficiarieswith reported earnings. The benefit amount is adjusted if thenew earnings increase the benefit by at least a dollar. However,note that a person receiving benefits prior to full retirementage with earnings from employment may have a forced suspensionof benefits (under the earnings test discussed later).16 | The American College | FALL 2011

8. be aware of divorced spouse’s benefitsDivorced spouses whose marriages lasted for at least 10 yearsmay be eligible for both spousal retirement benefits andwidow(er) benefits based on the former marriage. Divorcedspousal retirement benefits can begin as early as age 62, even ifthe former spouse has not claimed benefits (something a currentspouse cannot do), as long as the worker is eligible for retirementbenefits and the couple has been divorced for at least2 years. Similarly, divorced spouses age 60 or older (or age 50if disabled) are eligible for widow(er) benefits. The divorcedspousal benefits do not count against other benefits paid tothe worker and current family. Spousal retirement benefits fordivorced spouses are paid to unmarried individuals only, so anindividual remarried at the time benefits are payable will bedisqualified. The widow(er)’s benefit is a bit different as remarriageafter age 60 does not disqualify the former spouse fromeligibility for the widow(er) benefit from the former spouse.9. take advantage ofeligibility for multiple benefitsBeneficiaries eligible to receive more than one benefit may, insome cases, be able to benefit from deferring the more valuablebenefit, but still taking a different benefit at a younger age.Here are several examples:• Spousal benefits taken first. At or after full retirementage, a married (or divorced) spouse may have theoption to claim the spousal benefit and claim theworker’s benefit later—at age 70—to maximize theworker’s benefit. (Remember: A currently marriedspouse can begin a spousal benefit only if the workerhas claimed benefits. However, the worker can claimand suspend to trigger eligibility for the spouse.) Aneligible divorced spouse can take advantage of the samerule. This option is not available if benefits are claimedbefore full retirement age, because under the deemedfilingrule an individual filing before full retirement ageis treated as claiming both benefits, if eligible.• Worker’s benefits taken first. The spouse with a smallworker’s benefit may consider claiming benefits fromhis or her own earnings history at 62, and once thehigher-earning spouse retires, receive the higherspouse’s benefit. The deemed-filing rule is not animpediment here since the spouse is not entitled tothe spousal benefit until the worker claims retirementbenefits.• Widow(er)s benefit options. A widow eligible for bothwidow’s benefits and worker’s benefits can chooseone benefit and later choose the other. For example,a widow could take a reduced widow’s benefit at age60 or 62 and then switch to her maximum retirementbenefit when she reaches age 70.10. understand the earnings testand voluntary benefit suspensionsAn individual who has claimed early and is under age 70 maystill have an opportunity to suspend benefits to maximize futurebenefits. There is mandatory suspension under the earningstest prior to full retirement age and voluntary suspensionafter. If an individual begins to receive benefits prior tofull retirement age and earns more than the current threshold(generally $14,160), benefits are reduced under the earningstest. Most see this as a complete loss of benefits, but it’s actuallya forced suspension. At full retirement age, benefits areautomatically recalculated, assuming a later retirement agebased on the number of months that benefits were suspended.For example, if under the earnings test an individual loses sixmonths of payments, at full retirement age benefits are recalculatedbased on a retirement age that is six months later thanunder the initial calculation. After full retirement age, an individualcan elect to voluntarily suspend, which again allowsa future increase in benefits. These rules have the most significancefor those that are involuntarily terminated and need tobegin benefits early. If they are lucky enough to get anotherjob, they can suspend benefits, hopefully to age 70.conclusionsChoosing when to claim Social Security benefits is a decisionthat can affect long-term financial security. Deferring benefitscan improve the financial situation for many, and is an excellentway to finance basic retirement expenses for everyone—as Social Security is an inflation-adjusted annuity payable forlife. Married men, in particular, should consider deferring toimprove their wives’ financial situation after they die. Unfortunately,many people are making decisions without all theinformation. With a better understanding of the rules and thefinancial impact of the claiming decision, retirees can betterprotect themselves and their retirement security.FALL 2011 | The Wealth Channel Magazine | 17

etirementHealthcare Reform’s Effect on Medicareby Arthur Tacchino, JD, and James Woerheide> Learn how the Affordable Care Act changes Medicare and what these changes mean to your clientsArthur Tacchino, JDArthur is AssistantProfessor of HealthInsurance at TheAmerican College.He is responsiblefor several HuebnerSchool courses,as well as coursedevelopment anddesign.arthur.tacchino@TheAmericanCollege.eduJames WoerheideJames is currently aresearch assistant forThe College the fieldof Health Reform.James is a studentat the University ofDelaware.james.woerheide@TheAmericanCollege.eduOn March 23, 2010, the AffordableCare Act (ACA) was signedinto law and, since then, has dramaticallychanged the landscape ofthe healthcare industry. The changesinitiated by healthcare reformhave and will continue to have farreachingimplications. Provisionsof the law will affect hospitals, carriers,consumers, doctors, states,plan sponsors, employers and evengovernment programs, including Medicare. Medicareis the world’s largest federally funded healthprogram in the world. Each year the program assistsmillions of elderly citizens in meeting the costof their healthcare, and it plays a major role in thefinancial and retirement planning process. This articleexamines a number of the significant changesthat have been made or are coming to Medicareunder the Affordable Care Act. These changes willbe important to consider during the financial andretirement planning process.aca creates the independentpayment advisory boardCurrently, Congress is responsible for establishingpolicies affecting all aspects of the Medicare program.The Centers for Medicare & Medicaid Services(CMS) implement policy changes throughregulations and manage day-to-day program operations.Under our current system, the Medicare PaymentAdvisory Commission (MedPAC) submitsannual recommendations to Congress on a broadrange of Medicare issues. Note that MedPAC isnot required to achieve budgetary targets, has noindependent decision-making authority, and Congresshas no obligation to follow MedPAC’s recommendations.Under the Affordable Care Act,the Independent Payment Advisory Board will beMA plans are costing the federalgovernment approximately 10percent more per enrollee thantraditional Medicare.established. In some ways this board will act in asimilar fashion to MedPAC, however they will remainseparate entities and MedPAC will continuein its own functional capacity. The IndependentPayment Advisory Board will recommend proposalsto reduce Medicare spending if projected per capitaMedicare spending exceeds certain target growthrates. The Board represents the first time that theMedicare program will be subject to spending limits,with statutory requirements to achieve savingstargets, which is generally how the board differsfrom MedPAC.The board will be comprised of 15 full-timemembers that are appointed by the President andconfirmed by the Senate. It is important to be clearthat the board is prohibited from submitting proposalsthat would ration care, increase taxes, changeMedicare benefits or eligibility, increase beneficiarypremiums and cost-sharing requirements, or reducelow-income subsidies under Part D. The recommendationsmade by the board will have a bindingeffect on Congress if they fail to implement costsavingmeasures of their own once per capita Medicarespending rates exceed projected target growthrates.Professionals will need to track and understandthe changes and proposed recommendations thisboard makes in the future. Proposed spending cuts18 | The American College | FALL 2011

may have a negative impact on your clients who rely on accessto Medicare, and will play an important role in the longtermfinancial planning process. While the board is strictlyprohibited from making recommendations that ration careor increase beneficiary cost-sharing, reduced spending couldpotentially mean limitations to accessing care as well as increasedspending requirements on the part of the consumer.It will be important to take this into consideration during thefinancial and retirement planning process.payments to medicare advantageplans will be reduced over timeMany retirees find that their medical needs are better metwith Medicare Advantage (MA) plans, also known as MedicarePart C. However, changes to Medicare Advantage in theAffordable Care Act may make seniors and financial plannersalike reconsider their options. MA plans are contracted withprivate insurance companies. These plans must at least offerthe benefits that are provided through traditional Medicare.The reason an eligible Medicare beneficiary might enroll inone of these plans is that if MAplans save money compared totraditional Medicare, they canuse the money to offer enrolleesbenefits that are not usually offeredthrough traditional Medicare,such as vision and dental,or to lower the beneficiaries’out-of-pocket costs. To save themoney to do so, MA plans areusually contracted with Managed Care Organizations. The issuewith MA plans is that they are costing the federal governmentapproximately 10 percent more per enrollee than traditionalMedicare. Taxpayers, as well as enrollees, pay theseadditional costs in traditional Medicare plans in the form ofhigher premiums.The Affordable Care Act will bring payments to MA plansdown to the level of traditional Medicare. Between 2012 and2013, the benchmarks used to make payment decisions will begradually reduced to between 95 percent and 115 percent ofeach county’s traditional fee-for-service Medicare payments.According to the CMS, there will be bonus payments for plansthat achieve at least three stars on a five-star scale that ratesquality measures such as clinical outcomes and contract performance.However, the bonuses will tend to be significantlysmaller than the decreases in benchmarks.As a result, professionals should be aware that some medicalneeds may no longer be covered by MA plans and that MABeginning in 2013, Medicare will provideadditional progressively larger subsidies forthe cost of brand-name drugs until 2020.plan premiums may rise. The bright side to these reductionsis that premiums for enrollees of traditional Medicare will decrease,as they are no longer subsidizing the higher paymentsto Medicare Advantage plans. This, too, will be an importantfactor to take into account during the financial and retirementplanning process.aca extends the life of special needs plans“Dual eligibles” are people who are eligible for both Medicareand Medicaid. This demographic tends to be the least healthyof all Medicare beneficiaries, so it is important they find theplan that best suits their complex needs. Many dual eligiblesfind it most beneficial to join a Special Needs Plan (SNP).These plans were set to expire on December 31, 2010, butthe Affordable Care Act extends their authorization through2014. Therefore, seniors who are on these plans can expectthem to continue at least into the near future. Depending onhow benefits pan out for other MA plans, dual eligibles whowere formerly on MA plans may even find that their medicalFALL 2011 | The Wealth Channel Magazine | 19

etirementneeds are now better met using an SNP. Professionals need tobe aware that these plans found new life through the AffordableCare Act, and should always consider these plans whendealing with dual eligible or special needs clients.aca reduces the coverage gapMedicare Part D was designed to provide seniors with prescriptiondrug coverage. Unfortunately, prior to healthcarereform, many Part D beneficiaries suffered great financialhardship when the cost of their prescription drugs reachedthe initial coverage limit but before they reached catastrophiccoverage, in a coverage gap known as the “doughnut hole.”The size of this coverage gap exposes Medicare enrollees toincreased financial risk and leaves financial planners searchingfor possible solutions. The Affordable Care Act increasesbenefits to seniors in the doughnut hole with the intentionof making prescription drugs more affordable. As a result, effectivelyplanning for prescription drug needs in retirementor old age over the next decade will require more knowledgeand analysis than in years past. The process of phasing outthe doughnut hole began in 2010 when enrollees received$250 tax-free rebates upon reaching the coverage gap. Everyyear thereafter, benefits to enrollees in the coverage gap willincrease until 2020, when full benefits are in place and costparticipation of beneficiaries should be on par with rates priorto reaching the coverage gap of 25 percent.In preparing for reduced cost participation in retirement, itis important to note that brand name and generic drugs willbe phased in differently. In 2011, participating pharmaceuticalmanufacturers started providing a 50 percent discountfor the cost of brand-name drugs for Part D enrollees. Beginningin 2013, Medicare will provide additional progressivelylarger subsidies for the cost of brand-name drugs until 2020when the subsidy hits 25 percent. Receiving more favorabletreatment by the federal government, the cost of generic drugswill not be discounted by pharmaceutical companies. Instead,Medicare started providing subsidies of 7 percent in 2011, andwill continue to provide larger and larger subsidies every yearby intervals of 7 percent until 2020, when the subsidy willincrease from 2019’s amount by 12 percent to 75 percent. By2020, both types of drugs will have only 25 percent coinsurancerates for beneficiaries, which is the same rate paid onprescription drug costs before the coverage gap is met. Catastrophiccoverage will remain the same for Part D enrolleesboth in terms of coinsurance rates and the total cost of drugsthat must be met before catastrophic coverage begins; out-ofpocketcosts are not considered.The increased benefits and decreased cost sharing will likelyresult in higher premiums for Part D participants. In a sense,beneficiaries will be trading the risk of massive financial lossfor more certainty but higher monthly expenses. Professionalsmust take this risk evaluation into account during the financialand retirement planning process.Professionals must also be aware that higher income beneficiarieswill deal with premium hikes that started in 2010. Premiumsare increasing for individuals with annual incomes of$85,000 or more, and for couples with incomes of $170,000or more. The increased revenue associated with these premiumincreases will go to help pay for the phased-out doughnut holeand may reasonably be expected to rise again in the future.aca eliminates the retired drug subsidyMany Medicare eligible retirees rely on employment-basedprescription drug coverage. Such beneficiaries should be awareof the changes the Affordable Care Act is making to RetiredDrug Subsidies (RDS). Prior to healthcare reform, the programwould provide a tax-free subsidy to employers equal to28 percent of the benefits they pay out for retirees’ prescriptiondrugs. These retirement benefits paid were already taxexempt, so if a company paid $50 million in benefits, theywould receive $14 million in subsidies and the actual cost ofbenefits would be $36 million, but they would be tax exemptfor $50 million. This extra tax exemption was repealed by theAffordable Care Act, so retiree drug subsidies are now subjectto taxes. These changes will prove to be exceedingly costly formany firms. Therefore, in the coming years, many retirees canexpect some reductions in their employment-based retiree prescriptiondrug coverage. This will be an important factor toconsider during the financial and retirement planning process.going forwardThe significant changes to the Medicare program through theAffordable Care Act discussed here will impact the interactionbetween professionals in the financial planning and healthcareindustry and their clients. Awareness and consideration ofthese changes are necessary and vital during the financial andretirement planning process, as these changes could, in somecases, have a dramatic effect on the clients that they advise.20 | The American College | FALL 2011

etirementRunning Outof Moneyby Tom Hegna, CLU ® , ChFC ® , CASL ®> The power of lifetime annuity income in safeguarding financial stabilityTom Hegna CLU ® ,ChFC ® , CASL ®Tom is the Presidentof TomHegna.comand the author ofthe book Paychecksand Playchecks. Heis a former SeniorExecutive Officerof a Fortune 100Company andhas spoken mainplatform at Top ofthe Table, MDRT,SFSP and NAIFA.tom@tomhegna.comThe Wall Street Journal dated April 4, 2011, hada fascinating article titled “Feds Low Interest RatesCrack Retirees’ Nest Eggs.” The article describedthe dilemma facing 91-year-old Forrest Yeager, aresident of Port Charlotte, Fla. Forrest was downto his last $45,000, which he had invested in a CDpaying less than 1 percent per year. He was receivingabout $300 per year in income, which obviouslywas inadequate, so he wasforced to withdraw principalEven a very conservative clientneeds to optimize his/her portfoliowith exposure to commodities,stocks, TIPs and other inflationsensitiveinvestments.each year from his CD.“It hurts,” said Yeager, whoestimated his bank savingswould be depleted in aboutsix years at his current rateof withdrawal. “I don’t evenwant to think about it.”The story went on to saythat Yeager was just one ofmany who now find themselveson the wrong end ofthe Federal Reserve’s attempt to rescue the economywith low interest rates, and the article struck me tothe core. I wanted to know why Yeager didn’t simplywalk into any life insurance company in Americaand buy an immediate annuity. At age 91, he wouldbe guaranteed more than 20 percent per year fromany major life insurance company in this country. Arecent quote from immediateannuities.com showedthat a 90-year-old purchasing a $45,000 Life OnlyImmediate Annuity would receive $754 per month,or $9,048 per year. Moreover, this payout would beguaranteed for the rest of his life. He would neverbe concerned about running out of money.The Wall Street Journal article also highlighted70-year-old John Lehman, who took a different approach.He said he’s keeping about 80 percent of hisinvestments in stocks despite the shock he sufferedduring the financial crisis. “That’s why most of usare in the stock market,” he said, “because there’s noplace else to go.” The problem with this approachis that people in their 70s lose their peace of mind.They end up spending their retirement watchingCNBC rather than actually enjoying themselves.The volatility of the stock market causes significantstress and increases the risk that they will indeedrun out of money.The solution is a simple two-step process thatsays, first, a retiree should cover their basic expenseswith guaranteed lifetime income. What counts asguaranteed lifetime income? Social Security counts.Pensions count. So, when working with clients,FALL 2011 | The Wealth Channel Magazine | 21

etirementsimply ask them how much money they needto live their normal retirement lifestyle. Take thelevel of income needed to cover basic expenses,subtract what they are receiving in Social Securityand pension benefits, and the remaining shortfallshould be covered with a single premium immediateannuity (SPIA).Second, optimize the remaining portfolio witha special eye on inflation. Why the attention oninflation? Well, what are the risks to today’s retiree?One of the risks is deflation. If you thinkabout it, we’ve already taken care of that risk witha lifetime income annuity. In a deflationary environmentguaranteed lifetime income is a big winner.The paycheck stays the same while expensesdecrease, allowing the client to have increased realcash flow year after year. Longevity risk and withdrawalrate risk, otherwise known as sequencingor the order of returns, have been taken care of bythe guaranteed lifetime income, as well. So inflationis the main remaining risk to the client.Even a very conservative client needs to optimizehis/her portfolio with exposure to commodities,stocks, TIPs and other inflation-sensitiveinvestments. If inflation starts to increase, theseinvestments should also increase in value. As theydo, the client takes some profits and buys moreguaranteed lifetime income. A retiree also couldbuy inflation protection intheir lifetime income annuity,but my experience is thatladdering lifetime incomeannuities gives the clientmore flexibility throughoutretirement. It also gives thema sense of control and ties upfewer assets initially in an immediateannuity.If a client follows this simplestrategy, whether we haveinflation, hyperinflation, deflationor another Great Depression,the client will haveincome guaranteed for life that increases with inflation,stays the same with deflation and allowsthem to never run out of money. That’s incrediblepeace of mind.Take the level of income needed to coverbasic expenses, subtract what they arereceiving in Social Security and pensionbenefits, and the remaining shortfallshould be covered with a single premiumimmediate annuity (SPIA).22 | The American College | FALL 2011

Double counting of assets is a myththat puts many seniors at risk ofrunning out of money.What are some of the objections you willencounter using this strategy? The usual suspectsinclude:• Lack of liquidity;• Giving up control;• Low interest rate environment;• A dislike of giving money to theinsurance company; and• Believe that they can do better on theirown.For those who fear giving up control oftheir money and not having the liquidity theymay need in the future, the research is clear.The people who run out of money are exactlythe people who wanted to be in control and have all of theirmoney liquid. Remember, liquidity is not a one-time event. Itis a lifetime event. By covering your basic expenses with guaranteedincome, you increase your liquidity over your lifetime.Giving up control of some of your money actually means youdo have liquidity of your other funds. Too many people havea false sense of liquidity—they have their money in bonds orCDs and use the interest for income. At the same time, theycount that money as liquid. Yet, if they liquidate the money,they lose their income. This common double counting of assetsis a myth that puts many seniors at risk of running out ofmoney.“Why would I want to lock in interest rates that are at 40-year lows for the rest of my life?” First of all, this assumes thatinterest rates are going to rise significantly in the next 20 years,and I could give volumes of reasons why that may not happen.Regardless, if this is your client’s position, encourage them tostudy the payouts of lifetime income annuities. Remember,every paycheck is composed of three parts—principal, interestand mortality credits. The older a person is, the less interestrates even matter. For example, if Forrest Yeager bought thatlifetime income annuity, interest rates could double or tripleand it would barely have an impact on his payout rate. Conversely,if you were working with a 55-year-old, the objectionmay be valid and that client might be better off with sometype of variable annuity or variable immediate annuity.I am often asked this question: “I know my payout rateis good, but what is my actual interest rate?” Remember, theinsurance company does not set the interest rate; the clientdoes—by how long they live. You can’t even determine theinterest rate until you know when the client is going to expire.Those individuals who feel like they don’t want to give theirmoney to an insurance company, or they can do better ontheir own, again, in my experience are the people in dangerof running out of money. Just like some people don’t believein life insurance, some people don’t believe in lifetime incomeannuities. I am sorry about that, but there is nothing I can doother than present the facts. Laddered bonds can’t do what Ihave recommended. Withdrawals from a diversified portfoliocan’t do it either.The Financial Research Corporation of Boston said, “Ouranalysis shows that no other investment vehicle can rival theincome annuity for retirement security. There is no other vehiclein the marketplace that can convert assets into income asefficiently as the income annuity.”I couldn’t have said it better myself.FALL 2011 | The Wealth Channel Magazine | 23

etirementWomen and RetirementFailing to plan = Planning to failby Mary Quist-Newins, CLU ® , ChFC ® , CFP ®> Retirement challenges women face and how awareness can ensure financial preparednessMary Quist-Newins,CLU ® , ChFC ® , CFP ®Mary is the StateFarm Chair inWomen andFinancial Servicesand AssistantProfessor ofWomen’s Studiesat The AmericanCollege.mary.quist-newins@TheAmericanCollege.eduIt has been said that failure to planamounts to planning to fail. Nowhereis this more evident than inthe relationship between Americanwomen and planning for a financiallysecure retirement. Whilethe great majority of Americanwomen are justifiably anxiousabout their finances, a fractionalfew have developed retirementplans that adequately address theirfuture income, wealth and riskmanagement needs.A wide range of academic and industry studiesunderscore this retirement planning disconnect. Toillustrate, Oppenheimer Funds found that in 2005,93 percent of Baby Boomer women said saving forretirement was their primary goal. Yet, less than onein three women over age 50 had even attempted tocalculate how much they needed to save for retirement,according to a 2006 survey by the Universityof Michigan. The Michigan study further revealedthat less than one in five respondents, just 17 percent,had successfully developed a retirement plan.Absent a well-developed plan of action, it comesas no surprise that many women share deep apprehensionabout their financial security in their goldenyears. Given that females represent three in fourAmericans over 65 living in poverty, there is goodreason to be concerned—and even more reason toengage in planning to ward off a financially challengedfuture.In light of the stakes involved, it is important forfinancial professionals to connect the dots betweenspecific retirement opportunities/challenges thatmany women face and creating a well-conceivedAdvisors who quantify theeconomic impact of a decadeslongretirement can make alasting, positive difference forfemale clients.plan of action. By doing so, the benefits can be significant—bothfor female clients and for those thatadvise them.wealth managementOn the positive side of the retirement planningequation is the tremendous growth of womenownedcapital. It is widely estimated that femalesnow possess roughly half of the nation’s privatelyheld investment assets. Further, the IRS reportsthat in 2004 (the most recent year for which datais available) women represented 43 percent of thenation’s most prosperous individuals. By 2030, theBoston Consulting Group projects that two-thirdsof U.S. investment wealth will be in the hands ofwomen as a result of cumulative increases in education,employment, earnings and intergenerationalwealth transfer. These trends point to an emergentmarket of affluent females that expect sophisticatedstrategies for managing retirement wealth, includingstrategic asset allocation, retirement income distribution,tax management, charitable giving andestate preservation.24 | The American College | FALL 2011

isk managementWhile the rising prosperity of American women has beenbroadly reported in recent years, far less well acknowledgedare significant and pervasive financial risks that threaten many.Because these perils are most acute later in life, it is essentialthat advisors incorporate them in discussions with and retirementplans for their female clients. When compared withmen, there are five heightened risk areas that most womenshare:1. LongevityLife expectancy for women exceeds that for men by 5.3 years,according to the National Center for Health Statistics. Greaterlongevity increases the need for reliable sources of lifetime income,along with higher probabilities of singlehood and disablingillnesses.Advisors who quantify the economic impact of a decadeslongretirement can make a lasting, positive difference for femaleclients. To help prospects and clients better understandtheir longevity potential, a useful website is livingto100.com.The site’s life expectancy calculator incorporates medical andscientific data in a series of 40 questions related to health andfamily history. Once retirement income requirements are calculated,financial professionals can then designincome distribution strategies to meet them.2. Lower lifetime earningsThe Bureau of Labor Statistics (BLS) reports thatfemales in the U.S. generally earn about 80 centson the dollar when compared to males. In addition,as women on average take 12 years out oftheir working lives to care for children and/orparents, many have lifetime earnings that are farlower than one might expect. An astonishing example of thisdynamic is the gender analysis of long-term earnings conductedby Institute for Women’s Policy Research (IWPR).Having studied 15 years of data from the U.S. GovernmentAccountability Office, the IWPR study revealed that femaleworkers average lifetime earnings were just 38 percent of thosefor men.Predictably, lower earned income translates to reduced SocialSecurity Income (SSI) benefits, lesser retirement savingsand pensions for women than for men. The U.S. Census Bureaureports that in 2009, the mean for total retirement incomefor American females was $22,625 vs. men’s $38,754—a 40 percent disparity. In addition, earnings constraints forcegreater reliance on SSI as the mainstay of retirement income.This is affirmed by 2008 Social Security Administration (SSA)Life expectancy for womenexceeds that for men by 5.3 years.data showing that for women over 65, SSI provides more thantwo-thirds of their income, compared with about half of retirementincome for men.Calculating alternative scenarios on retirement inception,lifestyle and when to claim spousal and/or worker benefitsfrom both Social Security and qualified plans are among themost critical planning steps financial professionals can take.For most, this means going beyond looking at the annual SSAstatement of estimated benefits. With its multiple benefit calculators,answers to frequently asked questions and detailed,downloadable handbook, the SSA website (ssa.gov) is an excellentresource for running alternate income permutationsand better understanding their impact.3. SinglehoodWomen are more than twice as likely as men to be alone intheir later years. The absence of a second income earner/assetFALL 2011 | The Wealth Channel Magazine | 25

etirementowner carries obvious financial risks. The SSA reportsthat in 2007, more than one in four (28 percent)single women over age 65 were classified as “poor” or“near poor.”Tragically, widowhood significantly increases therisk of a woman becoming impoverished. Three infive women over age 75 are widowed. According toSSA statistics, while four percent of married elderlyfemales live in poverty, the number of impoverishedwidows over age 65 jumps to a whopping 17 percent—morethan four times the number for marriedwomen. The SSA also reveals that more than 40percent of widows of pensioners reported no pensionincome after their husband’s deaths. Perhaps the mosttroubling statisticcomes fromthe U.S. CensusAsking female prospects andclients about their potential forbecoming a caregiver can openthe door to a larger conversationabout long-term care.Bureau, whichfound in 2007that 80 percentof widows livingin poverty werenot poor whentheir husbandswere alive. Thissad fact shouldgive pause tothose who believethat life insurance is not needed in retirement.Financial professionals must both understand and analyzethe impact of survivor benefits from Social Security and pensions.Further, advisors need to engage both spouses—not thehusband or wife individually—when planning for retirementto ensure adequate survivor income is in place. Younger womenneed to take into account the high probability of singlehood,living alone and the importance of having an independentsource of income from pensions or other assets.4. Double jeopardy of long-term careWomen are doubly exposed to the devastating financial risksof long-term care because they are significantly more likelythan men to be both the caregiver and receiver. As long-termcare receivers, they rack up more than twice the average costfor care rendered to men and represent more than two in threeunpaid caregivers.The exorbitant costs associated with needing long-termcare assistance are generally well known. The financial toll thatcaregiving exacts is perhaps even greater. According to a 2011report by the MetLife MatureMarket Institute, theeconomic costs—betweenlost wages, reductions inSocial Security and pensionbenefits—is estimatedto be $324,044 for the averagefemale caregiver. Theconsequences of caregivingcan implode even thebest-laid retirement plan.As evidence, caregivers arefive times more likely to depend exclusively on Social Securityand more than twice as likely to end up in poverty accordingto the Older Women’s League.Asking female prospects and clients about their potentialfor becoming a caregiver can open the door to a larger conversationabout long-term care. Women need assistance in thisarea as affirmed in a 2008 study by Securian that found theoverwhelming majority (84 percent) of female caregivers saidno plans were made—until care was actually needed.Advisors can also help their female clients analyze their potentialfor needing care, its costs and impact on retirementsecurity. A particularly useful resource is the long-term careplanning tool on the U.S. Medicare site (medicare.gov). Thiscalculator asks for inputs on age, gender, earnings, health, locationof potential care services and family histories. Beyondproviding a wealth of unbiased information, the calculationgives an individualized projection of care costs and probabilities.26 | The American College | FALL 2011

5. financial literacyIndustry and academicstudies consistentlyaffirm thatfinancial illiteracy inthe U.S. is appallinglywidespread, and thatwomen lag behindmen on virtually everymeasure. A 2007 surveyby the Jump$tartCoalition for PersonalFinancial Literacyfound that one in fouradults failed a quiz onmoney basics (e.g.,inflation, interestDisability insuranceEmployer-providedlife insurnaceEmployer-sponsoredretirement planPersonal retirementplan/savingsProtection plans coveringinsurance needsHealth insurancerates, debt, savings vehicles,etc.). The sameresearch revealed thatfemales were almost three times more likely to fail the quizthan males.Perhaps even more striking is the lack of familiarity manywomen have with the very financial products that can helpthem achieve a more secure financial future. Research conductedby Prudential Financial in 2006 found that just roughlyhalf of all female respondents did not understand annuities,mutual funds and long-term care insurance well or at all.Because lack of understanding leads to inaction and there isa direct correlation between financial illiteracy and poverty,this important risk factor should be addressed when advisingclients.Advisors need to take time to assess their female clients’financial readiness and, where necessary, provide educationon retirement risks, planning approaches and recommendedproduct alternatives. In doing so, however, professionalsshould avoid talking down to women, as this is a commoncomplaint revealed in research.On more positive notes, most women are eager to learnand the rewards for advisors can be significant. According toa 2008 study by Allianz entitled “Women and Power,” onehalf of women prefer to learn about financial products fromfinancial professionals. Oppenheimer’s 2006 “Women and Investing”report further revealed that women are less likely toenjoy making investment decisions themselves and almost twoin three women (64 percent) feel more knowledgeable aboutmoney when they are working with a financial professional.Product ownership of clients with comprehensive financial Plansmenwomen43%Source: FPA & Ameriprise Financial Study of 3,022 adults with more than $50,000 in income or investableassets. July 2008.50%54%57%60%the retirement planning connectionTaken together, these wealth and risk management opportunitiesand challenges call for developing a comprehensive retirementplan. A transactional sales approach or single-issue focuswill fall far short of what is required to adequately addressthe retirement challenges presented by many female clients.In addition, industry research consistently affirms that womenare looking for holistic solutions to their financial needsand may take more action than men do when a comprehensiveplan is in place. The chart above reflects findings from a2008 study by the Financial Planning Association (FPA) andAmeriprise that shows significantly higher product ownershiprates among females with comprehensive plans relative to theirmale cohorts.Beyond impelling needed action, females also gain significantpsychological benefit through a holistic approach, accordingto the FPA/Ameriprise survey. Specifically, more thanfour in ten (42 percent) of those with multiple-issue plans saidthey felt “very/extremely” prepared for retirement. Their rateof confidence was more than twice of those women with anadvisor who had not developed a comprehensive plan (20 percent),and roughly three times the rate of self-directed femalerespondents (14 percent).Comprehensive retirement plans enable financial professionalsto better meet the complex financial and psychologicalneeds of their female clients. By doing so, advisors benefit bygaining deeper trust, higher rates of product implementationand satisfied clients eager to refer.63%62%68%70%72%83%93%FALL 2011 | The Wealth Channel Magazine | 27

etirementESOP Company Retirement Incomeby Dickson C. Buxton, CLU ® , ChFC ®> Explore the potential benefits of joining a shared ownership companyDickson C. Buxton,CLU ® , ChFC ®Dickson is aChartered FinancialConsultant andSenior ManagingDirector at PrivateCapital Corporation.dbuxton@privatecapitalcorp.comA recent poll showed that in thislong economic downturn collegegraduates can’t find well-payingjobs. When they do find work,unless they have specialized skillsand education in certain fields,they will not have retirement plansthat are funded by the employer.Other hardships deterring the unemployedand underemployed include:• Employer 401(k) planmatches that supplementemployee contributions have been sharplyreduced or eliminated as companiesdownsize to survive and their healthinsurance costs increase, and employees arepaying a larger share of the premium. This,in turn, reduces take-home pay, makingsaving for retirement even more difficult.• Defined benefit pension plans are usuallyonly offered by public agencies and these arenow being reduced, and many employees arebeing laying off in the budget crisis.• Future Social Security income for youngerpeople will have to be sharply reduced, andcontributions will increase as the system isunderfunded.• Most young people do not have theexperience and/or capital to go start theirown business, or the sales experience toget jobs selling products or services oncommission.The challenge is to rewardand motivate those who staywith a company and causethose thinking about leaving tocarefully assess the financial loss.but all is not lostEmployment opportunities do exist with many ofthe more than 11,000 employee stock ownershipplan (ESOP) companies in the nation with 10 millionplan participants. That’s more than the numberof public service union employees. Many will hirerecent college graduates if they have an entrepreneurialattitude and are willing to be compensatedwith a more modest salary, bonus income for exceptionalperformance and a share of the ownership ofthe company.Upon retirement ESOP and 401(k) accounts canbe rolled over to an IRA to supplement what will bea more modest Social Security income in the future.The old paternalistic attitudes of providing longtermemployment and expecting long-term loyaltyfrom subordinates no longer builds enduring relationships.Layoffs are now more frequent as companies reactto national and international competition bydownsizing staff and restructuring. Banks also havedifferent lending policies and less latitude in financing.A loss year causes major financial problemsfor the thinly capitalized company. This ripple effectcauses most people to become more concernedabout their own security.The challenge is to reward and motivate thosewho stay with a company and cause those who maybe thinking about leaving to carefully assess the financialloss involved in that decision.28 | The American College | FALL 2011

The enlightened CEO also recognizes that two kinds of equityare essential in building a company: dollars and sweat.A company is built over time by a CEO-entrepreneurwho is able to bring together a close-knit management teamingrained with the necessary discipline to recruit, train andmotivate employees to produce a quality product or service.Those CEOs who retire and then watch the company theybuilt continue to grow and prosper have exemplified the abilityto delegate authority, responsibility, risk and reward outto their associates, not down. They help people learn howto think for themselves and become independent membersof a group of like-minded individuals engaged in a commoncause—building a company dedicated to rewarding everyoneinvolved:• The client or customer with consistent high qualityservices or products and• Their employees, who feel like partners and who earnabove average current incomeThese associates also build future value through beneficialstock ownership, which helps solidify the value of stock ownershipin the company for all the shareholders.The enlightened CEO also recognizes that two kinds ofequity are essential in building a company: dollars and sweat.Those who feel that only capital is necessary will have tosell their company before its prime, as highly intelligent, motivatedpeople will normally not stay with an organization thathas as its creed: “From each according to one’s ability, and tothe founders and their family according to their need.”Only those family companies with a large number of relativeswill build an enduring company that can be perpetuatedover the years.Employee owners, on the other hand, have a different attitudeabout their company, their job and responsibilities thatmake them work more effectively as an ownership team.Recent studies have examined the stabilizing effect on acompany caused by employee ownership plans. The survivalrate of ESOP companies is markedly higher than for comparisoncompanies. They outperform their competitors in termsof return on assets and shareholder returns.Most people want to have more control over their own destiny.Joining a shared ownership company is a good way todo this.FALL 2011 | The Wealth Channel Magazine | 29

Retirement funds: 0Life expectancy: beyond my incomeby Arthur D. Kraus, CLU ® , ChFC ® , CAP ®> A long retirement with insufficient income from one’s retirement plan is a frightening proposition.Arthur D. Kraus,CLU ® , ChFC ® ,CAP ®Art is a nationallyrecognizedadvisor who wasa pioneer in fullfinancial planningand a former CEOof the NationalAssociation ofInsurance andFinancial Advisors.akraus@capintelligence.comIn the olden days people prepared for retirementwith pension plans. Those plans promised a lifetimeof income for the retiree and, sometimes, theirspouse. But pension plans became expensive foremployers and most were discarded for retirementsavings plans. These savings plans allowed employers,employees and oftentimes both to save moneyin the plan on a tax-deductible basis until the fundswere withdrawn.The objective of these savings plans is to accumulateas much money as possible and to withdrawa modest amount at retirement so that the incomewill last as long as the retiree and spouse live.In theory these plans have made sense. In practicethey haven’t worked out so well. In 2008,many retirees and Baby Boomers found that in adepressed investment market, their capital shrunk.Their reduced savings was further eroded by theincome that was required for their lifestyles. Thesituation left many retirees holding a little cash anda lot of insecurity. Many even tried to go back towork to augment the loss of income security.How did this happen, and how do we know thatit is probable this scenario will repeat itself in thefuture? To make a quick analysis of the problem oneonly needs to look at the history of the investmentmarkets and have a cursory understanding of thelaw that might give impetus to putting retirementon a slippery slope.Historically, retirement funds have been investedin either equities, fixed income securities, or a combinationof both. The focus of investment advisorswith retirement plans has been on accumulationand not distribution. So we have all been aware ofthe need to put money aside for retirement. In fact,accumulation has been almost exclusively the conversationalfocus regarding retirement.The fact of the matter is that accumulation isimportant, but measured by itself it misleads thefuture or current retiree. Fluctuating markets duringperiods of withdrawal during retirement mayhave a severe effect on the retiree’s financial security.2008 was an unusual year, but not the onlytime the investment markets have had severedownturns. The market dropped precipitously andthe worth of many accounts was cut substantially.Concurrently, interest rates began dropping to verylow returns.30 | The American College | FALL 2011

The effects on retirees and baby boomers wereprofound:• One of the common beliefs aboutretirement was that you could safelywithdraw 5 percent to 6 percent of yourretirement fund balance annually and feelfairly safe as market returns measured bysome indexes averaged higher than that.Often forgotten was that the investmentscontained fixed income securities thatdid not mirror the averages. So, afteraccumulation was complete, the problemthat retirees faced was how much theycould withdraw. Low fixedincome rates and a weakstock market made it nearlyimpossible to withdraw suchpercentages without reducingprincipal. Distributions fromthe accounts became theparamount issue.As accumulation was importantduring the working years,distribution planning is importantat pre-retirement and at retirement.• With no further contributionsbeing made to the plan (or justa few years of contributions to be made), the possibilityof a quick recovery to former accumulation levelsbecame improbable.Markets go up and down, and falling markets during the retirementyears are very dangerous. It is comparable to “reversedollar-cost-averaging.” When the market goes down, that is ofobvious concern. But when one has to sell additional shares ata lower market price to achieve the income that is required,the combination of a reduced accumulation and the sale ofmore shares can destroy one’s retirement plan.This is further exacerbated by the law. The law says that atage 70 ½ a retiree must take required minimum distributionsfrom his retirement plan. The percentage is set by law andeach year during retirement the percentages increase. So, bylaw, the retiree must take ever-increasing distributions eventhough the market may be underperforming. That is a formulafor financial disaster!Add to that the success that medical science has achieved.We are living much longer than the generations that precededus. Our need for income grows greater not only due to ourlonger life, but the cost of the medical attention that keeps usliving and vital.In summary, the problem is that the probability of a downmarket during an extended period of retirement will have severelynegative effects on our future financial security.How have retirees dealt with this kind of problem? In thepast they have done it one of two ways:• People have just hoped that reasonable withdrawalsand good returns over time would solve the problem.Sometimes they will and sometimes they won’t.Increasing mandated withdrawals (RMDs) may notallow for a conservative investment strategy to work.Today one would be hard pressed to find an economistwho paints a rosy economic picture. Many economistshave suggested that the investment and interest returnsin the future won’t be as favorable as we have seenpre-2008. Low returns and high withdrawals are adangerous formula for retirement plan survival.• Some people have purchased “lifetime income”through annuities with all or part of their retirementbalances in an attempt to guarantee income forretirement. The primary advantage is the promise ofan income for their retirement. The disadvantages arethat, absent any further guarantees, at the death of theretiree the balance of the funds used to purchase theannuity disappears. Nothing is left for beneficiaries.Additionally, the payouts for annuities are fixed andmay not provide adequate income for an inflationaryfuture.FALL 2011 | The Wealth Channel Magazine | 31

Thereis an alternativeto the historicchoices betweenhope and immediate annuities.It is to provide incomefrom your retirement savings withan insured guarantee that your incomewill continue for your retirement and yourspouse’s, too.Taking steps to assure income for retirement I think is criticalin your planning. As accumulation was important duringthe working years, distribution planning is important at preretirementand at retirement.These options have the effect of changing all or part ofyour savings plan into an income plan. It has the best of bothworlds in that you can keep your plan invested yet create retirementincome. This insured benefit has several features thatshould be important to most retirees.• It continues the advantage of the retirement savingsplan that you can choose how to invest your accountamong a choice of several objectives. As an example,you may choose among aggressive investments,growth, blended and conservative investments.Some companies offer even more choices. So,philosophically, there is little difference between whatyou are currently doing and what is available.• The insurance company will make several guarantees.The first is that your income will be based upona percentage of the funds that are invested. Thatpercentage will never go down. Additionally, thereare further guarantees that may be important for yourretirement income.– Your income will never go down despite poorinvestment results. For example, if you invest$100,000 and your rate of return is 5 percent,you will never get less than $5,000 per year, evenif your account runs out of money! That is theincome insurance you are purchasing.– If your account increases, your income willincrease, too. If in the above example your accountbalance became $150,000, your income wouldincrease to $7,500 per year. That income wouldremain at $7,500 unless the value of the accountincreased again. The insurance is that your incomecan only go up, cannot go down and cannot ceaseuntil the death of the beneficiaries.– Unlike an immediate annuity, at death any balancein the account will go to your named beneficiary.These guarantees are made by an insurance company. It isimportant that you select a company that is sound and thathas a long history of standing behind its guarantees. I suggestreviewing the company’s financial ratings and getting a goodunderstanding of the terms of the contract. A good plannercan help you with that.Of course, there are costs involved. The basic investmentcontract for the retirement funds is a variable annuity. Variableannuities have underlying costs, as do mutual funds, managedaccounts and any investment you might make. As in any investment,one should consider if the expenses are reasonable.The cost of the guarantee is on top of the investment costs.Investing in a variable annuity with qualified plan money doesnot provide any additional tax benefits to the retirement plan.But with the benefits of the underlying guarantees, it providesa reasonable expectation of a lifetime of income that a standaloneretirement plan cannot provide.What does that guarantee buy? Income for retirement insteadof the uncertainty of what fluctuating investments withincreasing withdrawals might provide, the opportunity tohave an increased income and to never have a decreased income,and the elimination of the fear of running out of moneybefore you run out of life.You might consider that it is not a cost you are adding buta value.The opinions voiced in this material are for general information only and are notintended to provide specific advice or recommendations for any individual. Todetermine which investment(s) may be appropriate for you, consult your financialadvisor prior to investing. All performance referenced is historical and is noguarantee of future results. All indices are unmanaged and cannot be invested intodirectly.Variable annuities are long-term, tax-deferred investment vehicles designed forretirement purposes and contain both an investment and insurance component.They are sold only by prospectus. Guarantees are based on claims paying abilityof the issuer. Withdrawals made prior to age 59 ½ are subject to 10 percent IRSpenalty tax and surrender charges may apply. Gains from tax-deferred investmentsare taxable as ordinary income upon withdrawal. The investment returns andprincipal value of the available subaccount portfolios will fl uctuate so that thevalue of an investor’s unit, when redeemed, may be worth more or less than theiroriginal value.Riders are additional guarantee options that are available to an annuity or lifeinsurance contract holder. While some riders are part of an existing contract, manyothers may carry additional fees, charges and restrictions, and the policyholdershould review their contract carefully before purchasing. Guarantees are based onthe claims paying ability of the issuing insurance company.32 | The American College | FALL 2011

etirementRetirement Dreams Rearrangedby Mary Anne Ehlert, CFP ®> 10 keys to providing sound retirement plan advice to clients with special needsMary Anne Ehlert,CFP ®Mary Anne isthe Founderand Presidentof ProtectedTomorrows, Inc.,which specializesin enhancing thelives of families withmembers who havespecial needs.info@protectedtomorrows.comChildren with disabilities are outlivingtheir parents, leading to a real need toensure their child is taken care of.Retirement planning,in a financialcontext,refers to the allocationof financesfor the period oftime in our lifewe call “retirement.”This normallymeans thesetting aside ofmoney or other assets to obtain a steady incomefor the time when we decide to stop working. Thegoal of retirement planning is to achieve financialindependence, when the need to be gainfully employedis optional rather than a necessity. Much ofthe planning done around setting goals for this timein our life revolves around the identification of thesomeday dreams we hold in our hearts.Each client sees retirement differently; partof our job as advisors is to help them think thatthrough. We listen to where they want to live, howthey want to spend their time, where they mighttravel and their concerns about their future healthcare.Our job is to help them build retirement cashflows, evaluate how they might use their money andclearly explain any risk they face in the future.Many families that we work with have a familymember with a disability. If we are not asking theright questions, we may be missing a significantpiece of retirement planning that is needed for thatfamily.The fact is, an estimated 15 to 20 percent ofAmericans have a permanent disability; that’s millionsof people. With the rise of developmentaldisabilities such as autism, more families will seethe need to plan differently for the future. Whenwe meet with our clients, we need to be asking thequestion, “Does anyone in your family need specialcare?” And asking once isn’t enough; things canchange. We need to ask at every annual review.With the number of individuals with disabilitiesincreasing each year, we must be aware of how thisimpacts the advice we give. For the purposes of thisarticle, disability is defined as a physical or mentalimpairment that substantially limits one or moremajor life activities for that individual. The governmenthas a more elaborate definition, but mostindividuals with some type of disability requirespecial planning. More than one third of Americanhouseholds either report a member with a disabilityor are impacted by disability (National DisabilityInstitute, REI Tour Annual Report, 2007-2008).For the first time in history, children with disabilitieswill outlive their parents, leading to a realneed to ensure their child is taken care of. In 2006,76 percent of individuals with developmental disabilitieslived at home. In 25 percent of these households,the family caregiver was age 60 or older, andthe average age of the individual with the disabilitywas 38 (University of Illinois at Chicago, Departmentof Disability and Human Development,2006).How do statistics like this affect retirement planning?Financial advisors will play an important rolein the lives of these individuals. If we do not helpfamilies with the major concern in their lives, wehave not provided complete advice.FALL 2011 | The Wealth Channel Magazine | 33

etirementAt the forefront of the client’s mind is the responsibility ofcaring for the disabled family member. Though they mightwish their retirement plan to focus on future travel to Italy,Spain and China, they must also think about who will stepinto their shoes if they do travel. They are constantly awarethat they must leave an inheritance behind and, therefore,must be prudent with their life savings to providing for theirown care and for their dependents, as well.The retirement plan for a family with a special needs familymember should address these 10 areas:1. the care planClients think about their own retirement in great detail. Butthey typically have difficulty doing this for their family memberwith a disability. They think in terms of safe rather thanfulfilling. I know I personally have made this mistake. I adviseclients to expand their thinking, but when I think of myown son, I think safety. I challenge clients to expand theirviews. The care planshould include all thefacets of life, includingthe areas of work, learningand play. We utilizea concept of relatingeach area of the client’sown retirement plan tothe same area for theirfamily member. Thishelps them expand theopportunities availableto their family memberand provides them notonly peace of mind, buthope that their familymember’s life will, infact, be truly fulfilling.2. the projected cash flow needs of theperson with the disabilityNot only does the advisor need to consider the future cashflow needs of the client retiring, but also that of any individualsdependent upon the client. The income needs depend onthe type of disability, the capability of the individual needingcare and the level of care required. Clients often have a difficulttime thinking of their family member without them, butthey must consider the following:• Where will this person live?• Will they need a caregiver?• Will it be a group environment?• Can they work?• What kind of recreation programs will beavailable?• How will transportation needs be met?• Are final arrangements funded?3. investment allocations/diversificationWe help clients position their funds for the future. Now theyneed to have those funds last even longer than their own lifetimes.Even at their death, money must remain to fund at leastone more family member, so the client is investing for three ormore. A client may be able to withstand market fluctuation,but the funds needed for their family member may need to beinvested more conservatively.34 | The American College | FALL 2011

4. government benefitprogram verificationWhen the client retires, often the familymember with a disability becomes eligiblefor social security under the record of theparent. This opens up the eligibility forMedicare for the person with the disability.Many government programs will be key to financial security ofthe individual with the disability. The family must understandwhat these are, and make sure their family member qualifiesand doesn’t lose these benefits due to some inadvertent retirementplanning mistake.5. understanding of limitationson assets and incomeGovernment rules and regulations are complicated and constantlychanging. Making the wrong financial move whenadvising families on how to set up accounts for their familymember with special needs can cost a great deal of money inlost benefits. That advisors understand the implications ofwhere funds are established and maintained is critically important.6. proper special needs estate planIn creating a comprehensive special needs plan, few things aremore important than establishing a properly drafted specialneeds trust. While your client may feel more comfortable havingthe trust drawn up by their current attorney, this might bea bad idea. Hiring an attorney who lacks the needed expertisein this area can have a devastating effect on the long-term financialsecurity of an individual with special needs. As thisis one of the most critical pieces to the special needs plan,advisors must emphasize the need to have the right attorneyperform this task, regardless of cost.7. beneficiary verificationAn inheritance gone awry will cause a great deal of headaches,including unneeded expense, and may even require a paybackto the government. Verifying all beneficiaries in a client’s estateis another key component that cannot be overlooked. Clientpensions should be carefully reviewed; often a pension is payableto not only a spouse, but to a child with a disability uponthe death of both parents. If this is not handled properly, governmentbenefits may be lost.8. the extended family meetingOnce a retirement plan has been developed, it needs to beshared with the extended family. Families may be hesitant todiscuss their plan with other family members for any numberAn inheritance gone awry mayrequire a payback to the government.of reasons. Advisors must convey to the family the importanceof sharing this information. Doing so will ensure that theirloved one receives consistent, comprehensive care.9. future caregiver instructionsThe client typically has already provided for their children bythe time they have retired. So they are not worried about makingsure guardians are in place for any young children. Butwhen a client has a family member with a disability, guardianshipmust be considered and care instructions must be leftbehind. Guardians often have no idea what their jobs will be.The client should carefully document the needs and wants ofhis/her family member. This guidance should coordinate withthe care plan, the cash flow, the retirement plan and the estateplan.10. the calm midst the stormsFamilies with individuals with special needs perform a complexjuggling act every day. They must manage ongoing appointmentswith doctors, therapists and social workers; fillout endless government paperwork; and seek out recreational,social and even employment opportunities for their lovedones. Balancing all of these tasks can quickly overwhelm thebest-intentioned family. Each family is impacted differently,depending upon the type of disability. So advisors must besensitive to the fact that while their clients want and need theirhelp, they need to be guided in a firm, yet gentle, manner, orthe train can quickly come off the tracks.Retirement planning is a key component to the advice weprovide our clients. Understanding the needs of the client intheir retirement is often much more encompassing in thesesituations. We have the opportunity to help our clients findnot only a financially secure and fulfilling retirement for themselves,but also one that includes peace of mind. This in turnprovides a lasting, meaningful relationship between the advisorand the clients they serve.We at Protected Tomorrows recognize that not every financialadvisor will have extensive special needs expertise. Whatadvisors can do is acknowledge the entire family, ask the rightquestions and know the challenges these families face. Bring inthe right team to help the family, and your client will acknowledgethat you truly have their best interests at heart.FALL 2011 | The Wealth Channel Magazine | 35

etirementRetirement Chores for SeniorsDecisions, decisions, decisionsby Garry Kinder, CLU ®> Ideas to help your clients when they are faced with the possibility of outliving their retirementGarry Kinder, CLU ®Garry beganhis career in lifeinsurance with TheEquitable at age20. Today he isCo-CEO of the KBIGroup and a salesand managementconsultant to morethan 300 companiesworldwide.gkinder@KinderBrothers.comNever before in historyhave seniors had so manychoices on how to live thebalance of their lives. Neverbefore have professionalfinancial advisors had thiskind of opportunity tomake an impact on the futuresof our senior citizens.When Social Securitywas created in 1935, mostpeople lived only a fewyears in retirement. Whenmy brother, Jack, and Ientered this industry inthe early 1950s, we wereexpected to live to age 68,just three years after retiring.Now, people are expectedto live two or threedecades after retiring.Seniors have manychoices. Some continueworking—many becausethey have to, others becausethey want to. Many will continue to work intheir own businesses. Others will continue employment,but change occupations. I have several friendswho have retired and returned to school, includingattending seminary so they can spend the balance oftheir lives in full-time religious work. Some spendtheir time volunteering in their local communities.Others spend time with their families—children,grandchildren and great-grandchildren.In Todd R. Tresidder’s book, How Much MoneyDo I Need to Retire?, he reminds us that life expectancyis constantly increasing. In fact, the averageHaving enough money tosupport 15 years of retirement iscompletely different from financing30 years or more.life expectancy increased by approximately 30 yearsduring the 20th century, stretching the amount oftime most people spend in retirement.Tresidder also tells us that while it is good newsfor retirees to be living longer, few people recognizethe dramatic impact it has on financial planningthrough retirement. Having enough money to support15 years of retirement is completely differentfrom financing 30 years or more.“In the first case, you can spend investment principle,but in the second case, spending principle istantamount to financial suicide,” said Tresidder. Hegoes on to tell us that the two situations are as financiallydifferent as night and day.36 | The American College | FALL 2011

Exhibit 1: Life insurance for every stage in lifeChildrenSinglesMarried noChildrenMarried w/ChildrenEmptyNestersSeniorsGuarantee Insurability ✔ ✔ ✔Cash Value Accumulation ✔ ✔ ✔ ✔ ✔Final Expenses ✔ ✔ ✔ ✔ ✔ ✔Lower Premiums ✔ ✔Debt Protection ✔ ✔ ✔ ✔ ✔Mortgage Acceleration ✔ ✔ ✔ ✔Income Needs ✔ ✔ ✔ ✔Lifestyle Protection ✔ ✔ ✔ ✔Future Funding for Emergency ✔ ✔ ✔Education FundMaximize Pension ✔ ✔Social Security Offset ✔ ✔Replace Group Insurance ✔ ✔Gifts ✔ ✔Equalization of InheritancesLegacy/CharityWealth ReplacementDynasty Trust Funding✔✔✔✔✔We are told that two-thirds of all the people in history whohave lived to age 65 are alive today. In the next few years,the number of people over 50 will grow by 74 percent, whilepeople under age 50 will grow by only 1 percent.examine exhibit 1Life Insurance for Every Stage in LifeAs we age, we have more needs. This changes the picture ofhow we should look at insurance coverage of all kinds. For theprofessional financial advisor, this means that life insuranceis needed in every stage in life. Unlike the 1950s and 1960s,senior citizens have more needs for life insurance than everbefore. (see Exhibit 1)When Jack and I started in the business, the 100-personstory went something like this: For every 100 people startingtheir career at age 25, by the time they reach 65, the followingwill have occurred:• 28 will be dead• 15 will be dead broke• 47 will be just barely getting by• Only 10 will be somewhat okayFast forward 60 years and here is how the 100-person storygoes: For every 100 people starting their career at age 25, bythe time they reach 65, the following will have occurred:• 13 will be dead• 10 will be dead broke• 65 will be just barely getting by• Only 12 will be somewhat okay—in the richest land inthe history of civilization.FALL 2011 | The Wealth Channel Magazine | 37

etirementExhibit 2Aging Population––Working longer; living longer––Very little pension accumulation––Retire early, continue to work––Have been consumers, not savers––Lost life insurance at work––Make decisions faster based on trustWe can see that the statistics on longevity inthe United States have changed dramatically.The median age keeps going up. In the recentcensus, the median age in the United States was37. That is an increase of 1.5 years since theyear 2000. The median age rose 2.5 years in the1990s and 2.8 years in the 1980s. The recentcensus also showed that the fastest growing partof our population in the U.S. is people over age55.My brother and I made the decision to continueworking as long as our health was goodand we could make a meaningful contributionto the financial services industry. In January2006, Jack had a massive stroke. Today, he is 83years old and needs 24-hour care. The doctorstell us he is in good health and is expected tolive many years into the future. Our plans havechanged dramatically. When my brother hadthe stroke, we were thankful that wehad disability income. We continueto be thankful that we have long-termcare, adequate retirement income andsufficient life insurance. Senior citizensneed the sound advice of a professionaladvisor.examine exhibit 2Aging PopulationMany people are not prepared properly from an income standpoint.Many have not purchased long-term care. Many haveinadequate life insurance. There is no question that some ofour best contacts are people over age 60.working with seniorsRemember that most of us in our 70s feel like we’re in our 50s.Many of us are spiritually motivated and receive great pleasurefrom things other than money.Senior citizens need the sound adviceof a professional advisor.We often choose to buy from younger people because theyremind us of our sons, daughters or grandchildren. Also, weknow younger professionals will be here to service us as wegrow older.We are generally low risk investors and like to see the evidenceof stability in advisors. We are from a generation thatsaved our money and spent it sparingly.The future has never been brighter for the professional financialadvisor. This is especially true for those who chooseto work with senior citizens and are aware of what it takes toconnect with them.38 | The American College | FALL 2011

Section Contents: The Cost of a Good Night’s Sleep 43 Does Your Portfolio Need a Shock Absorber? 47financeSense and Nonsense RegardingDistribution Portfoliosby Walt Woerheide, ChFC ® , CFP ® , Ph.D.> Strategies involved in managing a senior’s distribution portfolioWalt Woerheide,ChFC ® , CFP ® , Ph.D.Walt is the Frank M.Engle DistinguishedChair in EconomicSecurity Research,Vice President ofAcademic Affairsand Dean of TheAmerican College.walt.woerheide@TheAmericanCollege.eduWe classify most personal portfoliosas being for accumulation or distribution.In an accumulation portfolio,the client is accruing wealth toward aparticular objective, such as retirement.In a distribution portfolio, the clientis withdrawing cash on a consistentbasis. A key task of the financial planneris to make sure that the riskinessof either type of portfolio is consistentwith both the client’s risk tolerance andrisk capacity. There are no hard and fastrules. Much data exists on how to dothis with accumulation portfolios. We are still inthe early stages of deciding how a client’s risk toleranceand risk capacity would affect the designand implementation of a distribution portfolio.What follows is a discussion of the central issuesfor planners making decisions about the optimalrisk-return choices for distribution portfolios.definition of termsThe annual return for an accumulation portfoliois usually the sum of investment income andthe change in the portfolio’s value divided by theportfolio’s value at the start of that period, withadjustments for cash additions and withdrawals.We normally measure the risk of an accumulationportfolio using the standard deviation of returns.However, measures of return and risk when analyzingdistribution portfolios differ. Return for adistribution portfolio is usually measured as thecash withdrawn from the portfolio, and risk asPortfolio failure is either theportfolio dying before theclient dies or the portfoliodying before a specifiednumber of years.either the probability of the portfolio failing tolast a specific number of years (usually 30) or aportfolio dying before the investor does.The most common error in terminology regardingdistribution portfolios concerns thewithdrawal rate, which should more properly belabeled initial withdrawal rate (IWR). We measurethe IWR as the amount of money withdrawnduring the first year of retirement, divided by thevalue of the portfolio on the date of retirement.After the first year, we adjust the withdrawalsbased on a withdrawal strategy, one being thateach withdrawal is the same dollar amount. Werefer to this as the fixed annuity strategy. Anotheris that the amount withdrawn each year increasesby the inflation rate of the prior year. We call thisan inflation-adjusted annuity strategy. A third optionis to apply the IWR each year to the valueof the portfolio at the start of each year. We referto this as a performance-based annuity strategy, aseach year’s withdrawals will go up or down by theFALL 2011 | The Wealth Channel Magazine | 39

financerate of return on the portfoliothe prior year. This isthe only strategy in whichwe can apply the term“withdrawal rate” to boththe initial withdrawal andall subsequent withdrawals.It is also the only strategythat assures the client willnot dissipate the portfolio,although withdrawals maydrop to unacceptable levels.Finally, there are combinationinflation-adjusted, performance-basedstrategiesin which an inflation adjustmentis made, but onlyif the portfolio achieves certainperformance targets.The key parameters fora distribution portfolio areasset allocation, the IWR,the withdrawal strategy and“the number,” which is thevalue of the distributionportfolio on the date of retirement.Discussions aboutthe rate and the numberwill sometimes suggest criteriaabout the minimumacceptable probability ofportfolio success or maximum probability of portfolio failure,which are complements. Portfolio failure, again, is either theportfolio dying before the client dies or the portfolio dyingbefore a specified number of years.asset allocation is the easy choiceMost, but not all, research about distribution portfolios hasconsistently supported an optimal asset allocation of no lessthan 50 percent equities and no more than 75 percent equities.With less in equities, substantial risk exists that inflationadjustments will overwhelm the portfolio and wipe it out prematurely.With more in equities, there is substantial risk thata prolonged bear market will likewise deplete the portfolio. Atraditional rule of thumb for asset allocation for older clientsis the percentage in equities equals something like 100 minusone’s age. Little research has looked at the impact of such arule on the probability of portfolio failure, but the 50 percentA traditional rule of thumb for asset allocationfor older clients is the percentage in equitiesequals something like 100 minus one’s age.to 75 percent range would likely dominate an age-adjustmentasset allocation rule.need and risk toleranceAs the most commonly suggested withdrawal strategy is theinflation-adjusted annuity, let us focus on this strategy. Clearly,the lower the IWR, the larger the number has to be togenerate a specified amount of income in the first year. Thus,an annual initial withdrawal of $60,000 can be made withan IWR of 3 percent and a $2 million portfolio, a 4 percentIWR and a $1.5 million portfolio, or a 5 percent IWR and a$1.2 million portfolio. A larger IWR provides more annualincome for a client (return), but increases the probability ofportfolio failure (risk). The key point is that a planner can notmake a recommendation as to “the number” without knowingthe IWR, and cannot recommend an IWR without due considerationof the client’s need for return, the mix of required40 | The American College | FALL 2011

and optional expenses, and the client’s risktolerance and risk capacity.Let us assume for illustrative purposesthat Client A projects $80,000 in mandatoryexpenses (such as housing) and$20,000 in optional expenses the clientwould like to incur (such as vacations),but are not essential to daily living. Assume,also, that the client would like toleave a substantial estate to beneficiaries.Suppose the client has $75,000 in nonportfolioincome, such as Social Security,pensions and annuities. If the client has a$500,000 portfolio and plans a 5 percentwithdrawal rate, then this combinationwill produce the $100,000 desired incomeand allows the client to accept an aggressiveinvestment exposure to try to generatea larger estate. Simply put, because of theamount of fixed income relative to mandatoryexpenses, the client could afford totake on the lower probability of successassociated with the 5 percent rate and amore aggressive asset allocation to have agreater chance of a larger estate. In otherwords, this client has substantial risk capacity,and may have a high tolerance forrisk with the estate wishes.Client A may not have a strong desirefor a large estate, but may well care tospend more on optional activities than the $20,000 initiallyidentified. With a high-risk tolerance, this client could considera withdrawal rate larger than 5 percent. If Client A optsfor this higher rate and things do not go well, the client has thecapacity to reduce the withdrawal rate before putting at riskthe income necessary to meet required expenses.Now, assume Client B also projects a need to spend$100,000 per year, with $80,000 of that required and the remaining$20,000 desired but optional. The difference is thatClient B has only $25,000 of annual non-portfolio incomebut has a portfolio worth $1.5 million. With a 5 percent withdrawalrate, the client can still generate the desired $100,000income. However, because the portfolio withdrawals are theprimary source of the client’s mandatory expenses, a substantialdrop in the portfolio’s value would be catastrophic. Thisclient has no risk capacity, and may well have little tolerancefor risk. This client would do well to consider a reduction inthe withdrawal rate, even though this would mean, a lowerstandard of living than what he or she would desire, at leastinitially.Simply stated, talking about the number and the rate as ifall clients have the same risk capacity, risk tolerance and mixof mandatory and optional expenses is inappropriate. As thesetwo simple examples illustrate, risk capacity and tolerance aresituational and should be assessed by a financial advisor competentin retirement planning.other issues affectingthe rate and the numberAmple documentation proves that there is a difference betweenthe young-old and the old-old. At some point, retireesbecome more sedentary. We all know people in their 90s whoremain active and people in their 60s who are nearly incapacitated.Nonetheless, on average, most people tend to becomeless active around their mid-70s. This lower activity usuallyFALL 2011 | The Wealth Channel Magazine | 41

financeWhen a person reaches his desiredretirement age, the number is areality, no longer a goal.means a lower need for income. However, little research incorporatesthe implications of this fact into distribution portfolios.Thus, for a client who is 65, the likelihood of a less active,less expensive lifestyle in 10 years or so would mean the clientcould take on more risk initially than would otherwise be consideredappropriate. This greater risk could take the form of alarger IWR and/or a lower number in developing a retirementincome plan.A second and rarely discussed issue is the near sacredness ofincome stability in retirement. A reduction in income is sadfor anyone, whether it happens to a married breadwinner withsmall children, a person at the peak of the income-earningyears or someone in retirement. The breadwinner losing hisor her job likely means the family will reduce their standardof living. Everyone would understand. Research on retirementincome typically assumes that once a person selects a withdrawalstrategy such as an inflation-adjusted annuity, the personwill stick with that strategy regardless of what happens tothe portfolio. Thus, if there is a serious market collapse in thefirst few years of retirement, the assumption is that the individualwill continue to make inflation-adjusted withdrawals.I suggest that just as the breadwinner has to give up certainthings because of losing a job, a retiree may also have to cutexpenses if the market tanks in a manner that puts the retirementportfolio at risk. Retirees understand this point; notehow much is written in a recession for retirees about ways tosave money.Naturally, one can argue that starting with a higher numberand/or a lower withdrawal rate will reduce the risk of givingup a dream retirement. However, when a person reaches hisor her desired retirement age, the number is a reality, no longera goal. A lower IWR than is reasonable to build in morecertainty of income only means the client is giving up someincome in the early years of retirement to reduce the risk ofa larger reduction later. Whether all retirees would want tomake this choice is unclear.Although the most commonly researched withdrawal strategyis the inflation-adjusted annuity, there is a lack of researchshowing whether this is what all or most clients really wantor need. Considering that for some a large portion of theirretirement expenses are fixed, some clients can substitute lessexpensive purchases for more expensive ones, and that mostpeople will see a reduction in living expenses during retirement,the client may not always need an inflation-adjustedincome stream.logical next stepsSuggesting there is an optimal withdrawal rate, an optimalportfolio value, or even a minimum acceptable probabilityof portfolio success or a maximum acceptable probability ofportfolio failure, is simplistic. These variables interact, andthey are dependent on a client’s risk tolerance and risk capacity.Just as there are many good questionnaires for determiningrisk tolerance for clients with accumulation portfolios,the planning profession needs to develop good instrumentsfor identifying risk tolerance and risk capacity for clients withdistribution portfolios. A major area of research would be todetermine how the scores on these instruments would relate tothe parameters for distribution portfolios.42 | The American College | FALL 2011

financeThe Cost of a Good Night’s Sleepby Craig Lemoine, CFP ®> Cheaper may not always be better in retirement distribution planningCraig Lemoine, CFP ®Craig is an AssistantProfessor of FinancialPlanning at TheAmerican Collegeand holds the JarrettDavis DistinguishedProfessorshipin Finance andAccounting.craig.lemoine@TheAmericanCollege.eduWhen accumulating assets,lower-cost, equity-based portfoliomodels tend to build moreterminal wealth than their higher-costcounterparts (Pang andWarschawsky, 2009; Vernon,2009). In most financial planningapplications, lowering netinvestment costs raises net investmentreturns. When savingfor retirement, consumers havesome flexibility in determininghow long to continue workingand how much to add to theirpersonal retirement savings. Building wealth ismathematically straightforward; any time value ofmoney equation for future value ties growth to netreturn.When saving for retirement,consumers have some flexibilityin determining how long tocontinue working and howmuch to add to their personalretirement savings.growing a nest egg –future value formulaA future value for any long-term goal can be manipulatedby increasing the number of periods inwhich savings will occur, raising payments towardsa goal or raising the net return associated with thegoal. Translated to a retirement planning model, alarger nest egg can be reached by:• Delaying retirement (increasing n)• Increasing monthly retirement savings(higher contributions)• Achieving a higher net return througheither a higher gross return and/or lowerinvestment costsAll three options help build a larger nest egg,but raising gross return is often limited by risk tolerancepreferences. Clients are not able to achievehigher, prudent, long-term gross return if they arerisk averse or if they dial down equity and aggressivebond holdings in their portfolio as they approachretirement. With a potential limit to thereach of gross returns, manipulating costs may bethe only method of raising the net return and maximizinga nest egg at retirement.more about costsPlanning for retirement requires consumers tobuild a nest egg. This nest egg is theoretically enhancedby lowering direct and indirect investmentcosts. However, consumers may benefit from payingsome investment costs if they increase grossreturn by working with a mutual fund managerwho exceeds his or her peers at a constant level ofrisk, or paying an investment adviser an annual feeto review asset allocations in multiple retirementaccounts. Higher cost portfolios with guaranteedcomponents may find higher retirement successrates than their lower cost, nonguaranteed counterparts(Lemoine et. Al, 2010; Milevsky & Young,2007; Horneff et. Al, 2008).A recent study intended to show the incrementalcost of retirement portfolio success. Five popularretirement savings strategies were modeled tocompare client annual portfolio costs and retire-FALL 2011 | The Wealth Channel Magazine | 43

financement success. They included investing in:• Mutual funds for the do-it-yourself (DIY) investor• Mutual funds working with a financial servicesprovider (FSP)• Variable annuity contract• Immediate annuity• Fifty percent mutual funds, 50 percent immediateannuityTo test retirement goals, an initial sum of $1 million wascredited to a 65-year-old client. This portfolio was subjectedto client income needs, defined as an inflation-adjusted 4.0percent annual withdrawal rate, common to other retirementmodeling scenarios (Milevsky, et al., 2006). Monte Carloanalysis was applied to each strategy and 1,000 trials were run.Life expectancy was randomized by thesoftware tool used. Any trial that hadmoney remaining at death was considereda success, and trials that reach aportfolio value of $0 during retirementor a year where cash flows did not meetrequired needs were considered a failure.The Financeware Monte Carlo toolwas used to model all trials.Client asset allocations followedone of two approaches: The DIY clientutilized a simple 20 percent large capstock, 70 percent bonds and 10 percentcash allocation. Fixed-income returnswere modeled on the previous 10 years of CRSP Bond Data;domestic equities were modeled using the Russell 1,000; internationalequities using the previous decade of the MSCIEAFE index; and cash was modeled using a T-Bill proxy.Clients working with a financial adviser, in both mutualfund and variable annuity trials, employed a more sophisticatedasset allocation than a DIY client. Advisor-assisted allocationswere comprised of 60 percent bonds, 25 percent domesticequities (20 percent large cap and 5 percent small cap),10 percent international equities and 5 percent cash. This allocationutilized a more developed diversification to reflect potentialvalue or detriment of working with a financial adviser.mutual funds – diy allocationThis client experienced average mutual fund costs (1.21 percent)and administrative fees (0.05) without any additionalfees associated with working with a financial advisor. Totalcosts were 1.26 percent.mutual funds – fspThis trial assumed 1.21 percent in mutual fund costs and anadditional 50 basis points to model revenue paid to an FSP.Administrative fees of 0.05 percent were included, raising totalcosts to 1.76 percent.variable annuityThis trial assumed subaccount fees equal to those in a mutualfund (1.21 percent) with an additional 85 basis pointsfor mortality and expense charges (0.85 percent) and 65 basispoints (0.65 percent) for a guaranteed income rider, whichprovided a base of 5 percent of the highest annual accountvalue regardless of portfolio value. Annuity costs were basedon the average of two major insurers’ deferred variable annuityproducts in the spring of 2011. Total costs of the annuitymodel were 2.71 percent.While working with a financialprofessional costs more than going italone, retirement income guaranteesand appropriate allocations can be wellworth the extra expense.Variable annuity trials were split into two groups: trials thatwere successful without accessing a guaranteed income benefitand those that failed. Failed trials were then reviewed to determineif guaranteed income benefits would have altered clientsuccess. Variable annuity trials that failed the second trial continuedto provide a fraction of retirement needs.immediate annuityAny allocations utilizing an immediate annuity considered thepurchase price of such a contract in July 2011. For a 65-yearoldmale, $100,000 purchased an annual benefit of about$6,800 with a highly rated insurance company. These benefitsdid not adjust for inflation and did not include any survivorpayments.The direct cost of an annuity to a client was the premiumcost. However, stating this cost was misleading. The client receiveda cash-flow stream in return for his or her premium.The true cost of a contract could only be determined once thecash flows had stopped at the death of the client.44 | The American College | FALL 2011

Immediate annuity costs were to be determinedretroactively at death, subtracting thepresent value of benefits from the initial premiumamount ($1 million). A risk-free rateof 3.0 percent was applied when discountingannuity costs. The aggregate contract costcould then be annualized over the period oftime a client received payments.The accumulation of assets is drivenby maximizing return, for a given levelof risk, considering payments andtime to save towards a goal.blended approachesA blended approach of mutual funds and animmediate annuity account were considered. Fifty percent ofthe portfolio was placed in actively managed mutual fundsand the remaining 50 percent went toward the purchase of animmediate annuity. This strategy allowed consumers to maintainliquidity in mutual funds but lock in the guarantee of animmediate annuity purchase.resultsAll model success rates were between 83 percent and98 percent, mirroring similar literature using MonteCarlo techniques on retirement planning distributions(Lemoine, et. al., 2010). Initial client spendingof $40,000 was inflated at 3.0 percent annually. Clientlife expectancies varied from 66 to 113.• 100 percent mutual funds—DIY client: 827trials succeeded and 173 failed, for an 82.7percent success rate. First-year costs associatedwith this strategy on a $1 million portfoliowere $12,600.• 100 percent mutual funds with FSP: 844trials succeeded and 153 failed, for an 84.4percent success rate. First-year costs including assetmanagement fees were $17,600.• 100 percent variable annuity with guaranteed incomeoption: 767 trials succeeded and 233 failed, for a 76.7percent success rate. The failed trials were modeledusing the stated 5 percent of premium guaranteedretirement income rider, and of the 233 failed trials36.5 percent reverted to passing. In all, 852 trialssucceeded and 148 failed, for an 85.2 percent successrate. First-year contract costs were $27,100.• 100 percent immediate annuity: 928 trials succeededand 72 failed. Failure tended to occur when clientslived past age 95.Death PercentileFifteen percent of trials resulted in death at or beforeclient age 74; 25 percent at or before age 78; 50percent of trials resulted in death at or before age 84;and 75 percent of all trials incorporated death by age92. All trials showed death no later than age 113. Thelonger a client lived, the lower the effective cost of anannuity purchase was to the client. After a client livedpast 85, the indirect annuity cost to the client droppedto $0.Age of DeathAnnualized Cost ofAnnuity to Client15% 74 $60,43325% 78 $26,02950% 84 $1,81375% 92 $0In modeling a $1 million immediate annuity for a65-year-old, optimal life expectancy was between 85and 95. During this decade, the client realized anindirect, cost-free annuity contract and did not exhaustresources. While 49.6 percent of clients lived to age 85,only 13.9 percent made it to age 95. Approximately35 percent of trials had death during this optimal lifeexpectancy.• Fifty percent mutual funds, 50 percent immediateannuity: 972 trials succeeded and 38 failed, for a 97.2percent success rate. Annual costs were $8,800 formutual fund and adviser fees, and ranged based onage of client death for the immediate annuity from$30,433 to $0.FALL 2011 | The Wealth Channel Magazine | 45

financePortfolio success rates across strategiesconclusionWhen considering annuity distributionstrategies, costs stand independent of successrates. While working with a financialprofessional costs more than going it alone,retirement income guarantees and appropriateallocations can be well worth the extraexpense.Ideally, clients would not continue drawing4 percent out of a portfolio if their retirementassets decreased at a rate higher than projected. Reducingwithdrawal rates would raise success percentage acrossall four savings tools. Clients may also choose to change assetallocations in retirement, which might positively or negativelyinfluence results. Current federal and state taxation and potentialtax reform actions were not addressed here, but couldcertainly influence success rates.Both annuity options had failures, but the failures were notcatastrophic. Using 100 percent variable annuities, the clientwould receive a stagnant cash flow of $50,000 annually overtheir lifetime, and for every $100,000 annuitized the clientwould receive $6,800 annually over their lifetime. These cashflows might not sustain 100 percent of retirement spending,but offer more than mutual fund failures, which would resultin 0 percent ongoing cash flows.While the immediate annuity option had the highest percentageof success of any single product offering, clients mustThe DIY portfolio had the lowestfirst-year costs of $12,600, but alsoexperienced the lowest success rate.maintain liquid emergency funds outside of an immediatecontract. An immediate annuity does not offer a bequest motiveat death; the contract modeled would pass $0 assets to asurviving spouse or children. Combining strategies was valuableto help clients achieve a bigger bang for their buck. Abasic combination of 50 percent mutual funds and 50 percentimmediate annuity contract addressed the issue of liquidityand provided a much higher success rate than either strategyalone.The accumulation of assets is driven by maximizing return,for a given level of risk, considering payments and time tosave towards a goal. These principles are not consistent whendiscussing retirement distributions. The DIY portfolio hadthe lowest first-year costs of $12,600, but also experiencedthe lowest success rate. True retirement income success comesfrom blending diversification, guarantees and withdrawalsinto a plan that can help your clients sleep at night.46 | The American College | FALL 2011

financeDoes Your PortfolioNeed a Shock Absorber?by Kevin Hogan, CLU ®> Direct investments provide market shock absorbers your client’s asset allocation strategy may needKevin Hogan, CLU ®Executive Directorof the InvestmentProgram Association(IPA), the leadingnational tradeassociationadvocating forthe inclusion ofdirect investmentsin a diversifiedinvestment portfolio.khogan@ipa.comThe financial meltdown that began in 2008 hasproduced an encyclopedia of lessons for just abouteveryone. For investors, few lessons were more importantor more painful than this: Asset allocationdidn’t work nearly as well as it was supposed to. Infact, it didn’t work very well at all.In the steepest stock market decline since theGreat Depression, the diversification providedby stocks and bonds turned out not to be diverseenough. There is an old phrase: “The only thingthat goes up in a down market is correlation,” and,boy, was that phrase accurate during the financialcrisis! The problem was the dominant asset classes—stocks (including international and domestic, large,mid and small, growth and value) and bonds—wereclosely correlated. Responding to the same financialforces in virtually the same way, they plunged dramaticallyand simultaneously. Bonds that weresupposed to hedge stock market risk mirroredit instead, amplifying the resultingdamage to portfolios rather thanmitigating it.The concept of correlation in theinvestment arena needs some explanation.To say that assets are correlateddoesn’t mean that they willproduce identical returns. It meansthey will move in the same direction.Think of closely correlated assetsstacked like puppets on a string.A strong tug from the top will pullall of them up in tandem; a strongpull from the bottom will pull all ofthem down.Alternative or direct investments,which are generally not correlated toLong-term USGov't Bondsthe equity market, are attached to a separate string.They respond to tugs up or down on their string,but tugs on the equity string won’t affect them. Ifthe correlation is negative, these assets may rise inresponse to forces that make equities fall, and viceversa. (There are many types of direct investments,but for the purposes of this article, I’m referringonly to non-traded real estate investment trustsand managed futures, because industry-recognizedyardsticks measure their performance.)Chart 1 compares the relative correlations ofdirect investments to other asset classes. Real estatehas no correlation to government bonds and aminimal correlation to the Standard & Poor’s 500Index. International stocks, by contrast, are highlycorrelated to the S&P 500 and more correlatedthan real estate to long-term bonds, as well.chart 1: 20-year correlation matrixLong-termUS Gov'tBonds1.0000US Gov't T-billsUS Gov't T-bills 0.1225 1.0000S&P 500IndexS&P 500 Index -0.3184 0.0796 1.0000US SmallStocksUS Small Stocks -0.3532 -0.0609 0.7968 1.0000InternationalStocksDirect RealEstateManagedFuturesInternationalStocks-0.3120 -0.0680 0.8393 0.6820 1.0000Direct RealEstate-0.0708 0.3261 0.1696 0.0962 0.1638 1.0000ManagedFutures0.3864 0.0292 -0.1763 -0.2795 -0.0437 -0.0354 1.0000No CorrelationHigh CorrelationSource: Morningstar EnCorrNote: Data from 20-year quarterly historical returns represented by the followingindices: Long-term US government bonds – IA SBBI LT US Govt TR Index; USgovernment T-bills – IA SBBI US 30-day TBill Index; S&P 500 Index – IA SBBI S&P500 TR Index; US Small Stocks – IA SBBI US Small Stock TR Index; InternationalStocks – MSCI EAFE Index; Direct Real Estate – NCREIF Property Index; ManagedFutures – CISDM CTA Equal-weighted Index.FALL 2011 | The Wealth Channel Magazine | 47

financechart 2: Portfolio 1 –without Direct investmentschart 3: Portfolios 2 and 3 – with Direct investmentsPortfolio 1 Portfolio 2 Portfolio 3expected return 8.45% 8.39% 8.32%standard Deviation 11.90% 11.10% 10.40%Source: Morningstar OptimizerTrisha Miller, national salesmanager for Carey Financial,an affiliate of W.P. Carey &Co., LLC, said direct investmentsin a portfolio play therole of shock absorbers in a car,easing the passage over bumpsand creating a smoother ride.“Driving from San Franciscoto Washington D.C. in a carwithout shock absorbers wouldbe very uncomfortable,” she explained. “So uncomfortable,you’ll probably abandon the trip long before you reach yourdestination—somewhere in Kansas, if you get that far. That’swhat investing in the stock market could be like without directinvestments in your portfolio.”Direct investments, similarly, reduce the portfolio shockscaused by sudden, rapid increases and steep downturns in thestock market. Chart 2 compares the correlations of several differentasset classes, and Chart 3 illustrates the impact directinvestments have on portfolio returns and volatility.Using these correlations and 20 years of historical returndata as benchmarks, a portfolio with a traditional allocation ofstocks, bonds and cash produced a return of 8.45 percent witha standard deviation (the way analysts measure volatility) of11.9 percent. Allocating 5 percent of a portfolio to real estateand 5 percent to managed futures reduces the expected returnby only .06 percent while reducing expected volatility by .8percent. Further increasing allocations of each to 10 percentreduced the expected return a little more but reduced expectedvolatility a lot—standard deviation fell to 10.4 percent, a 150basis point reduction in risk, which is significant in reducingvolatility.Institutional investors are well aware of these benefits. CallanAssociates’ 2010 Alternative Investment Survey found thatfoundations and endowment funds allocated an average of 35percent of their portfolios to alternative investments (otherthan equities, bonds and cash), up from 16 percent in 2005.Direct investments, such as real estate and managed futures,are also showing up more frequently in the portfolios of highnet-worthinvestors, averaging about 10 percent of their assetsin 2009, according to the “World Wealth Report” produced byCapgemini and Merrill Lynch.Despite the demonstrated ability of direct investments todiversify portfolios and reduce their volatility, they have notbeen embraced as widely as one might expect for two reasons:liquidity concerns and the belief that direct investments areappropriate only for sophisticated investors with a high tolerancefor risk.Most direct investments do, in fact, have limited liquidity—afactor advisors should consider carefully in determiningsuitability for their clients. However, the limited liquidityinherent in these investments also has potential benefits forinvestors and for the markets, because it encourages a longtermperspective and discourages knee-jerk reactions that canmagnify losses in individual portfolios and asset classes. Thekey to successfully integrating direct investments in an asset allocationstrategy is to ensure that liquidity needs are addressedelsewhere in the portfolio, for example, by increasing the allocationfor Treasury bills.The assumption that direct investments are not appropriatefor conservative investors is widely shared—and completelybackward. Based on investment theory, the more conservativethe investor, the greater the allocation to direct investmentsshould be to reduce the volatility generated by the stock market.The shock-absorber feature of direct investments makesthem ideally suited for conservative investors who prefer thegentle, predictable up-and-down of a carousel to the steepclimbs and heart-stopping plunges of a roller coaster.It would be difficult to find investors more conservative thanthe nonprofit foundations and college endowments that havebeen steadily adding direct investments to their portfolios. Accordingto the National Association of College and UniversityBusiness Officers “2010 Endowment Study,” allocations foralternative strategies ranged from 24 percent for funds withassets between $51 million and $100 million to 60 percent forthose with assets of more than $1 billion.Direct investments don’t offer the promise of soaring returns,but they may reduce the damage caused by financialshocks. They don’t guarantee a portfolio’s returns, but theymake the returns more consistent over time. They don’t eliminatebumps in the investment road, but they cushion the impact,increasing the likelihood that investors will reach theirdestinations comfortably, building solid returns while incurringminimal bruising along the way.48 | The American College | FALL 2011

Section Contents: How to Make Asset-Based LTC Insurance Part of Your Practice 51insuranceRetirement SecurityIt’s a whole new worldby Robert D. Shapiro, CLU ®> What insurance companies should know to protect clients from risks associated with longevityRobert D. Shapiro,CLU ®Bob is Presidentof The ShapiroNetwork, Inc.,which he formed in1987. He has beena managementconsultant andinvestment bankerto the insuranceindustry since 1965.shapironetwork@ameritech.netThe retirement security environment and the relatedbattlefield for financial services organizations continueto change substantially. The ongoing financial crisis hasaccelerated this evolution. In recent years, as consumerawareness and concerns have increased, the competitiveretirement marketplace has been disrupted, and agents,regulators and rating agencies are feeling pressure as thebasic nature of retirement changes. Factors driving all ofthis include:• Continued employer de-risking of their retirementprograms. For example, employers continueto switch from defined benefit to definedcontribution programs and require higheremployer contributions.• Persistent, low fixed-income returns.• Persistent stock market volatility.• Increasing recognition by the press (and public)of the difference between single-premiumdeferred annuities and immediate annuities,and the importance of considering not onlyasset accumulation but also, as one approachesretirement, life income management.• The current inadequacies in advice and relatedfinancial management tools as baby boomerstransform from their asset accumulation phase totheir retirement phase (often partial at first).• The new nature of retirement. More and more,individuals are phasing their retirements. Partof this is in response to financial pressuresto accumulate more retirement funds, butincreasingly it is a reflection of the individuals’ lifedesign strategy, as they look at the real possibilitythat they will live into their 90s (or beyond).new principlesWhat does this mean for financial servicesorganizations that seek to serve seniorswho are retired or nearing retirement?Efforts of financial services companieswishing to serve future retirees must:1. Begin with a retirement strategycustomized for the individual.Most advisors seek to fit theretirement strategy to the wantsand needs of the senior (and thesenior’s family), as well as theindividual’s assets and earningpower. This customized retirementdesign generally reflects not onlyexisting assets, health and futureearning capacity, but also theindividual’s legacy objectives, taxesand desired standard of living.However, this process is muchmore difficult and complex todaythan it has been in the past. Moreand more the responsibility forretirement has shifted from theemployer to the individual. Thefinancial crisis has established anew normal (lower) for expectedfuture returns. Great uncertaintiesand risks exist in the futureof healthcare and entitlementprograms. The relative futureroles of retirees, employers andgovernment are not clear.FALL 2011 | The Wealth Channel Magazine | 49

insurance2. Address holistically allretirement risks. These risksinclude living too long, gettingsick, becoming incapacitated,future inflation and variablereturn on asset sequencepossibilities.3. Focus on optimizingretirement security. Thisdemands clearly articulatedgoals and priorities, effectivesequencing of various accumulated asset categories(e.g., tax sheltered vs. other funds) and the use ofguarantees to assure that the senior has maximumconfidence that any of the contingencies that mightarise would be reasonably covered. The proper balanceis to be sure that the senior does not outlive his/her income, while at the same time not forcing thesenior to live less comfortably than he/she need to.Uncertainty should be minimized as much as possible.4. Monitor continually and adjust the retirementplan as experience evolves. When conditions changeunexpectedly (and they always do), the plan should beappropriately adjusted. There needs to be a continualbalancing of return versus investment risk and, duringthe decumulation stage, return vs. longevity risk.the opportunitiesIf life insurance companies play their cards right, they shouldhave a dominant role in the future retirement security market.Life insurance companies are the only financial organizationsthat can ensure that an individual will not outlive his or herincome. The industry needs to continue to look for platformsthat enable it to provide and communicate the powerful longevityprotection benefits it can deliver.For years the industry has promoted providing family protectionupon the early death of the breadwinner, albeit oftenin a linear way with many copycat products and approaches.In recent years more annuities have been sold, but the greatmajority of these sales are designed for asset accumulation(e.g., SPDAs) vs. longevity protection (e.g., IAs). The industrymodel for meeting retirement needs to shift from this tax-shelteredaccumulation framework to one that protects a seniorfrom running out of money later in life. The industry must getas effective in selling (and supporting) products and servicesthat protect individuals from the financial consequences of livinglong as they have in selling life insurance to protect againstThe industry model for meetingretirement needs to shift from this taxshelteredaccumulation framework toone that protects a senior from runningout of money later in life.early death. This won’t be easy, but it is critical if the industryis to preserve its strength and reputation in the future.So, what might we see in the future? A handful of life insurancecompanies are already doing creative things to addressthe life income needs described earlier. Several companiesmarket a deferred life annuity that efficiently protects againstliving a long time. This product provides a guaranteed life incomeat an advanced age (say age 85) that can be paid for ina single premium or a sequence of annual premiums in one’s50s or 60s. The resulting annual retirement benefit per dollarof premium paid can be five or 10 times the amount paid inan immediate annuity that starts when the money is given tothe insurer.A number of other products serving particular segments ofthe retiring or retired market have also been introduced by lifeinsurers ranging from a product that provides enhanced benefitsfor impaired health seniors to an annuity that is fundedout of a laddering of CD investments.The industry must do a better job of dealing with the transitionfrom working to partially retired to retired. Currently,there is a significant drain of life insurance industry assets toother institutions (like Fidelity, Vanguard and Schwab) whenan individual retires and starts to take income. The industrycould be helped by future government support (e.g., requiringa portion of retirement funds in a life annuity). Other countrieshave done such things.Seniors at all level of wealth are clamoring for help in theirtransition from their working/asset accumulation life to theirretiring/decumulation life. We in the life insurance industryhave a tremendous opportunity to meet their needs becauseof our unique ability to protect against longevity risks. In theprocess, we can move our industry and ourselves to an evenstronger level.50 | The American College | FALL 2011

insuranceHow to Make Asset-Based LTCInsurance Part of Your Practiceby Bruce Moon, CLU ® , ChFC ® , CASL ®> Get the details on a hybrid long-term care insurance product for your clientsBruce Moon, CLU ® ,ChFC ® , CASL ®Bruce is VicePresident of TheState Life InsuranceCompany, aOneAmericaCompany, andhas focused onasset-based LTCsolutions for morethan 20 years in avariety of roles frommarketing to productdevelopment.bruce.moon@oneamerica.comYour clients have worked hard for whatthey’ve accumulated, and they expecttheir dollars to provide more value andtax advantages.In June, LIMRAresearch datashowed that newpremium sales forasset-based longtermcare (LTC)insurance productsgrew by 62percent in 2010,a strong follow-upto the double-digitgrowth for theseproducts in 2009. In fact, 2010 sales surpassed $1billion. While products in this genre have beenavailable for more than 20 years, they are nowshowing real momentum. If you are unfamiliarwith the term “asset-based LTC products,” sometimesknown as “combination” or “hybrid” LTCinsurance products, these options combine othertypes of insurance, such as life insurance and annuities,with LTC coverage.Why the increased interest and sales growth?One reason is that these products typically havesubstantial guarantees (fixed interest rate, benefitsthat don’t decrease, premiums that don’t increase),which appeal to the needs of today’s clients. Additionally,the rest of the LTC insurance (LTCI) industrycontinues to struggle with well-documentedpricing issues, and some long-time insurers haveactually stopped issuing new policies.Those of us who have been involved in the financialservices business and taken insurance courseworkthrough The American College understandthe importance of providing clients with protectionfrom the expenses associated with LTC. The bestretirement planning cannot be considered completeif it does not cover the area of extended care expenses—thosenot covered by Medicare or other healthinsurance.starting a better conversationOriginally, some producers were disinclined toinvestigate the asset-based LTC route because thethinking was these products weren’t as good ashealth-based LTCI. Asset-based LTCI is not healthbasedLTCI, and it is not sold like it. Asset-basedproducts use the chassis of life insurance and annuities.This means that benefits are available in theform of death benefits and cash values should LTCnever be needed. They are commonly funded with asingle premium that clients reallocate from existingsources, like other annuities, CDs, rainy day funds,even qualified money—allowing clients to avoidongoing, annual premiums. A conversation starteralong the lines of “If you had LTC expenses tomorrow,where would the money come from to pay forit?” can be a good way to identify these assets.Life insurance and annuity-based LTCI productsdiffer in their approaches. Life-based productsprovide immediate leverage in the form of a deathbenefit that can be accessed for qualifying LTC expenses.These products are triple-tax advantaged:tax-deferred growth of the cash, tax-free LTC ben-FALL 2011 | The Wealth Channel Magazine | 51

insuranceefits (if the contract meets federal rules for tax-qualified LTCI)and, of course, at death, any unused benefits pass as incometax-free life insurance proceeds.Here’s an example of how the life-basedLTC approach can work:Ray and Maggie Marsh are both age 65 and have a CD thatis maturing soon worth $100,000. They have been retired forthree years and all of their income needs have been met. Ifthey reallocate that $100,000 into a single premium life/LTCproduct, that amount could purchase $207,500 in guaranteeddeath benefits, all of which can be used for qualifying longtermcare expenses at $4,150 per month.Because this is a joint life contract, they both have accessto the long-term care benefit balance, equal to their deathbenefit. They have a full return of premium provision availableshould they walk away, but their cash value is earning4 percent (before cost of insurance charges). Purchasing thisprotection did not negatively impact the Marshes’ retirementincome; however, they are in much better position to coverlong-term care expenses—with any unused benefits passingincome tax-free to their heirs, church and/or favorite charity.Annuity-based LTCI products have grown as a consequenceof the Pension Protection Act. Withdrawals from the annuitycan be income tax-free for qualifying LTC expenses. Annuitybasedproducts accumulate value for future LTC expenses overtime. Clients with existing annuities not needed for incomemay be attracted to these solutions. Annuity-based productsextend LTC benefits beyond the cash value by providing anadditional LTC fund, and some companies offer this extensionwith lifetime benefits and guaranteed premiums.For an example of how the annuity/LTC approach can work,let’s look at Herman (age 75) and Lucille (age 73) Birch. Theyhave an old annuity, now worth $150,000, that is out of surrendercharges. The Birches see friends and neighbors beginningto slow down, and contemplate why they haven’t boughtprotection against long-term care expenses. After agreeing thattheir annuity would never be used for income, they choose anew annuity/LTC combination where they can utilize theircash value to purchase a total LTC benefit of $332,000—theircash plus an additional LTC fund provided by the insurancecompany of more than $180,000. This creates a monthly benefitof almost $5,000 that either or both can use.You will also notice different approaches to these assetbasedLTCI products. For example, life insurance optionsinclude both whole life and universal life (UL). While ULcan sometimes offer slightly higher benefits, whole life-basedproducts typically offer more guarantees. On the annuity side,fixed deferred annuities or variable deferred annuities can beused as vehicles. Again, one offers more guarantees than theother. You can discuss the pros and cons with your clients.understanding the marketMany sales of asset-based solutions are of the single premiumvariety, but not all. Over the history of asset-based LTCIsolutions, which dates back to the late 1980s, purchasers arepeople in their 60s, 70s and even 80s, with liquid assets of$300,000 to well over $1 million. This is a market where themost interested shoppers are in retirement and have a goodfeel for their assets and expenses. Health does matter, as theseproducts are medically underwritten.Because your clients have worked hard for what they’ve accumulated,they expect their dollars to provide more value andtax advantages—exactly what asset-based LTCI products aredesigned to do.present the options to your clientsWith many options available, policies can be maximized forbenefits at death or benefits for LTC. Benefit periods can be asshort as two years to, with some companies, lifetime coverage.Some companies allow spouses to purchase a joint coverageunder a single contract.While the flexibility provided by asset-based products is significant,it is best to listen to the client, identify the asset bestused for premium and then make a recommendation based onwhat you have heard.live, quit or dieWhen it comes time to close, remember to focus on the keyaspects of asset-based LTCI. Most clients don’t envision everneeding the long-term care value of the policy, so emphasizethe value that will be received if care is not needed. Several optionsoffer a full return of premium at time of surrender (forsingle premium sales). That familiar “live, quit or die” closeworks especially well with these products.there has never been a better timeThe diversity of asset-based products available to clients hasnever been greater. In addition, federal tax law makes thesecombinations of coverage attractive. It is easy to see why assetbasedLTCI is an expanding market. Evaluate the companiesin the market, look at their track record and explore the optionsthey offer—you and your clients will be glad you did.52 | The American College | FALL 2011

Section Contents: Succession Planning for the Advisor – Selling a financial services practice 57 Ensuring Beneficiaries ReceiveIntended Assets 61estate planningFarm Transition Planningand Retirement Planningby Donald G. Schreiber, JD, CLU ® , ChFC ®> Learn what it takes to successfully retire from the farmDonald G.Schreiber, JD,CLU ® , ChFC ®Donald is Directorof Advanced Salesat NationwideInsurance.schreid1@nationwide.comOf the 2.13 million farms inthe United States, 98 percent ofthem are family owned. Statistically,the farm operator is gettingolder with the median age being57 (U.S. Department of Agriculture).Farm transition planningfor the farming community is agrowing concern for the industry.At first blush one might suspectthat farm transition planningand retirement planning aremiles apart, disconnected and unrelated. This,actually, is far from the truth.A number of factors go into a successful farmtransition from one generation to the next. Someof these factors relate, directly or indirectly, to theability of the farm operator to achieve financialindependence through a retirement plan that includesself-sufficiency independent of the farmoperation. We will look at two important factors:economic viability and mentorship and farmtransfer before death.In addition, we will look at two retirementstrategies that are being used within the farmtransition plan framework.• Combining defined benefit (DB) planswith buy/sell arrangements during lifetime• Using Charitable Remainder Trusts(CRTs) and conservation easements whenno children are taking over the farmoperationTo successfully transition tothe next generation...the farmoperator needs to have amentorship plan as part of theoverall farm transition plan.economic viabilityTo successfully transition to the next generation,a farm operation needs to be economically viable.The farm operation must be able to not onlysupport the farm operator, but enable that farmoperator to set money aside for his retirement.Why? If the farm income is insufficient to allowfor an excess, it may be uninviting to the nextgeneration as a career choice. Why work hard forso little?The inability to fund a retirement programfrom the farm operation is one potential red flagfor lack of economic viability. Without economicviability, the likelihood of success in transition issignificantly reduced. Conversely, the ability togenerate retirement assets within the financialstructure of the farm operation is one sign of economicviability.As a farmer develops a farm transition plan,one goal should be to build in retirement fundingas an objective within that plan.FALL 2011 | The Wealth Channel Magazine | 53

estate planningmentorship and farmtransfer before deathAnother very important transitionplanning factor related to retirementplanning is the issue of thefarmer turning over the control ofthe farm operation to the youngergeneration. People run the farmoperation. While the older generationfarm operator has demonstratedover time that he or she cansuccessfully operate the farm andsurvive, the next generation mustalso learn how to successfully runthe operation. The farm operator,the one who grows the crops andraises the livestock, needs to nurture,grow and raise up a successorfarm operator from the children (ifthere are any) currently involved inthe farming operation. This meansallowing them to take on more andmore responsibility and decisionmakingover time, ultimately turningthe farm over to them when thefarmer retires.A source of funding separate from the farm allows the olderfarmer the psychological and financial ability to systematicallyturn over responsibilities of the operation to the younger farmoperator.To successfully transition to the younger generation, thenext leader of the farm needs to develop the necessary skillsand experience. This means the current farm operator needsa mentorship plan as part of the overall farm transition plan.Ultimately, people make the farm transition plan successful.That specifically and critically means the next generationof farmers must be capable operators. Integrated into the mentorshipprogram part of the farm transition plan is a retirementfunding element that makes it financially easier to allowthe current farm operator to more aggressively mentor thenext operator and turn the operation over to them with theassurance that they won’t be financially compromised as thenew operator takes over.A farm is a business, so traditional IRA, Roth IRA, and anassortment of defined contributions and defined benefit plansmay be acceptable as retirement funding options, dependingon the farm’s individual facts and circumstances.Let’s take a quick look at two strategies where retirementplanning has been integrated into the transition plan.defined benefit planand buy/sell arrangementA farm operator is in his 50s. He has a child who is activein the operation and two children who are not involved andwork elsewhere. The active child has spent a number of yearshelping the operator grow the farm.A business/farm owner often begins as a key operator andtakes years of hard work to build a solid and profitable operation.Usually this means that the retirement funding objectivehas been a secondary concern, and the owner is behind thegoal later in life.Once the business matures and the children become independentadults, the business owner is now in a position to tryto catch up on his/her retirement funding objective. In thisexample we will assume that the farm operation has a healthycash reserve.The farm operator has a number of objectives:• He wants to catch up on his retirement funding andreach some level of financial independence apart fromthe farm operation54 | The American College | FALL 2011

• He wants to start the processof turning the farm over tothe active child to groomhim to become the nextoperator. In so doing, hewants to recognize thatchild’s contribution to thefarm over the years thatchild has worked the land.This means giving the farmto the active child in amanner that helps him besuccessful and for less thanthe highest asking price forthe operationThe active child also has an objective.He has helped increase thevalue of the farm, but by his effortis generating more value into thepotential inheritance of the nonactivechildren. For every dollarhe helps build in farm value, twothirds of that value goes to the other non-active children. Heneeds to know that he will receive the farm intact withoutfractionalizing the ownership into a position where he gets aminority interest. The farm is his livelihood, and he does notwant to work hard only to see majority ownership go to hisnonactive siblings. However, if he tries to buy out the farmfrom his parents by using farm income to do it, he is in a taxquandary. The buyout would call for him to own the farm andpay his father and mother for the purchase price of the farm.He would earn the money from the farm, pay the after taxpurchase payment, and pay tax on the income at the highesttax bracket that he finds himself in that year. The principleamount of the buyout is not tax deductible to him.To accomplish the goals for both the current farm ownerand his active child, the transition planner recommends thatthe farm value be assessed using the most conservative butIRS defensible valuation formulae that can be used. The farmoperation then installs a defined benefit plan to significantlyeschew the cash reserves of the farm into the older farm operator’saccount to catch up on retirement funding. He mayname the beneficiaries of that retirement plan ultimately tobe the nonworking children as part of their portion of theinheritance.In this example we are able to start the process of makingthe farm operator financially independent apart from the farmoperation. He now feels more comfortable to start more aggressivelyturning over the farm operation to his active child.He is building retirement funds more quickly for himself andhis spouse by using the defined benefit plan as the way to acceleratethe funding.In return for this arrangement the active son gets a reducedvalue for the purchase of the farm by the decision to use themost conservative, but IRS defensible valuation formulae forthe buyout.In essence, the active child will now get a deduction for partof the buy out by being able to deduct the contribution to thedefined benefit plan that is being used as a component part ofthe transition plan.Both the operator and his active son achieve progress towardtheir specific goals and objectives.the crt and conservationeasement techniqueIn a second example, a farmer finds that none of his childrenwish to continue the farm operation. The farmer and hisspouse very much want this land to continue to be used asfarmland into the future. The farmer has not been able to finda suitable successor but is able to locate a younger farmer tocash rent the land when he has to give up farming because ofhealth concerns.To set up the farmer’s retirement a series of actions are taken.First, a Charitable Remainder Trust (CRT) is establishedFALL 2011 | The Wealth Channel Magazine | 55

estate planningand the farmer transfers his storedcrop and all equipment into the CRT.Selling grain or crops outright wouldlikely generate pure taxable income tothe farmer, incurring significant incometax liabilities in the year of sale.Equipment is subject to depreciation,so a sale of the equipment that hasbeen significantly depreciated couldhave significant tax liabilities to theexiting farm operator. There is littlecost basis in this property but considerablevalue. The CRT sells the storedcrop and equipment to fund the CRTwith cash that is invested to provide astream of income to the farm couple.The farmland is set up with cash rentarrangements resulting in anothersource of income in addition to theCRT income.In addition, purchase of agriculturalconservation easement (PACE)programs can be an important toolfor local planners who wish to manage sprawl whilealso addressing environmental degradation. The2002 federal farm bill greatly increased interest inPACE by committing nearly $1 billion in 50 percentmatching funds for these programs over the next 10years. PACE is a program that is designed, in part, tolock in farmland for farmland use by compensatinglandowners for permanently limiting nonagricultural use oftheir land. If the easement meets the criteria of IRC Section170(h), the transfer may be treated as a charitable gift givingsome tax benefits to the farm operator.Like many farm owners, this farm operator is adamantabout limiting nonagricultural use of his land. This might bean aid to achieving both his land use goal and his retirementincome goals.With two sources of retirement income in hand—CRTand cash rent of farmland—the farm operator can establishyet another source of retirement funding using a conservationeasement.In this case, significant income taxation may be avoided onthe sale of crops and equipment by using the CRT technique.Furthermore, the ultimate goal of keeping the land as farmlandis preserved and results in additional money for retirement.Many farm owners are adamantabout limiting non-agriculturaluse of their land.conclusionFarm transition planning is becoming a major area of need forthe United States farm community. To give oneself the bestchance for a successful transition, a number of areas need tobe handled, including retirement planning.Federal tax laws are complex and subject to change. Neither Nationwide nor itsrepresentatives give legal or tax advice. Please talk with an attorney or tax advisorfor answers to specific questions.CIRCULAR 230 DISCLOSURE: To comply with U.S. Treasury Departmentregulations, we inform you that, unless otherwise expressly indicated, any taxadvice as contained in this communication (including any attachments) is notintended or written to be used, and cannot be used, by any person other thanNationwide and its affiliates, for the purpose of (i) avoiding penalties that maybe imposed under the Internal Revenue Code or any other applicable tax law, or(ii) promoting, marketing or recommending to another party any transaction,arrangement or other matter.56 | The American College | FALL 2011

estate planningSuccession Planning for the AdvisorSelling a financial services practiceby Al Depman, CLU ® , ChFC ®> Learn the secrets to making a smooth transition from your financial services practiceAl Depman, CLU ® ,ChFC ®Al is the author ofHow To Build YourFinancial AdvisoryBusiness AndSell It At A Profitand the creatorof The PracticeManagementAssessmentdiagnostic tool.aldepman@aol.com“The shoemaker’s children are oftenshoeless.” Or so goes the old proverb.Most financial services professionalshave “retirement planning” as a lineitem in their brochure or on their webpage. Yet how many have done theirown retirement planning? In additionto the standard triad of governmentprograms, company pensions and personalsavings and investments, how willyou, the financial professional, tap intoa fourth asset: the value of the practiceyou’ve been building all these years? More than everbefore, an aging population of advisors is seekingan answer to that question. In the past couple ofyears I’ve been drawn into a number of these successionsituations and have gleaned a set of five criticalcriteria that need consideration when embarkingon this project. To that end, I present a case studyof one successful succession to illustrate these fiveconcepts.Mike, our family’s financial advisor, decided itwas time to retire. He’d celebrated his 40th year inthe financial services business and, while he enjoyedinteracting with his top tier clientele, at 65 years ofage he was ready to break away from the daily grind.Over time, his practice had grown from a legacy lifeinsurance model, evolving through changes in thefinancial markets, and ultimately settling into threemain pools: 120 financial planning clients, 225 singleneed clients, 75 small group and 300 individualhealth clients.Mike had entertained some discussions withwould-be buyers over the past few years but hadn’tfound a serious contender. Until he met Brad.Brad Pratt, CLU ® , 54, has been expanding his30-year practice by selectively buying out otherOne of the biggest dangersin a practice sale is key clientswho are uncomfortable withthe buyer choosing to findanother advisor.advisors. What particularly attracted Mike was thefact that Brad’s son, Bryan Pratt, CFP ® , 29, was anintegral part of the team, had an ownership interestand would provide a next generation of care for hisbest clients and their families.The negotiations and buyout took place over ayear and provide us with an excellent case studyof best practices in Mike’s ownership transition toBrad and Bryan. There are five broad topics to coverin preparing for a successful succession, each withrisk and reward implications:• Values match,• Transition participation,• Systems compatibility,• Financial considerations, and• Readiness for client transfer.Let’s look at each.values matchDuring the discussions to determine if he’s goingto purchase a practice, Brad seeks the answer to adeceptively simple question: “Is it about the clientsor about the money?” Is the seller more interestedin getting his price than in the care and servicing ofhis clientele? The question cuts right to the funda-FALL 2011 | The Wealth Channel Magazine | 57

estate planningmental philosophy of Mike’s approachto his practice: Is he relationship-basedor transactional? The answer will drivethe rest of the negotiations.As mentioned, Mike developedthree pools of clients during the courseof his business, reflecting different emphasesas he experimented with variousmarketing concepts over the years.In examining Mike’s book, Bradfound that the 120 financial planningclients were Mike’s strongest relationships and most compatiblewith his own values. These planning clients were mostlyin later, pre-retirement growth phases, anywhere from earlydistribution to 10 years away from accessing the nest eggs.Mike had groomed them for “not outliving their incomestream.” However, Mike knew he was slipping when it cameto investment nuances, keeping up with the tax and estatelaws, technological changes and the latest generation of hybridproducts combining annuity, long-term care and life insuranceconcepts. He spoke extensively with Brad and Bryan whodemonstrated a strong grasp of all these concepts, as well as aclear manner of communicating them to clients. Mike’s overridingconcern with these planning clients was to ensure thecontinuity and completion of what they had started together.Is the seller more interested in gettinghis price than in the care and servicingof his clientele?Mike felt differently about the 225 single need and 375group and individual health clients. While some were friendsand long-time clients, as a whole they were more transactionaland required maintenance but had little potential that Mikecould discern. Brad’s practice was growth oriented. He had nodesire to be caretaker of near-dormant accounts. Additionally,he was not interested in the world of health insurance as itenters an era of upheaval.In the end, Mike found two different buyers for these twopools of clients. A colleague who did embrace the healthcarebusiness took those 375 clients and a younger, fourth-yearagent from his primary carrier arranged to take on the 225others. Both of the buyers passed Mike’s core values test but,admittedly, the sales were more about the money than the clients.58 | The American College | FALL 2011

Not so the planning clients. There are many values-basedred flags that Brad watches for while engaging a seller. Amongthem:• Has the seller been consistent with the annual reviewsof his clients?• Did the seller get to know the next generation of thetop clients and begin introducing legacy planningideas?• Has the selling advisor done his own financialplanning? Is this sale the sole means of support, or haveother retirement income streams been established?• Did the seller have his own contingency plan in placefor disability or death? This would indicate a strongclient orientation.• Are there any compliance issues in the seller’s history?Are there any lurking in the future?transition participationIn entertaining the decision to buy the 120 planning clients,Brad next looked to what Mike would be willing to do toensure that most—if not all—would agree to the switch. Oneof the biggest dangers in a practice sale is key clients who areuncomfortable with the buyer choosing to either follow Mikeor find another advisor. As Mike is retiring from the businessand is willing to sign a non-compete agreement, the formerconcern is moot.However, the latter danger of finding another advisor wasalive and well. Mike has a strong personality and a proven willingnessto go to the mat with the home office to fight for a client’srights. This tenacity has been a hallmark of his practice,and clients have been vocal in their appreciation of this trait.One of the core elements of Mike’s good will factor is his clientactivism. Brad knew he would have to sell his own version ofthis doggedness to win over Mike’s clients.Mike dug in and interviewed Brad’s team members for examplesof how they handled routine and exceptional servicerequests. If they weren’t satisfied with the results of an interactionwith a home office person, how did they proceed? Inshort, did they keep the client’s best interests in mind? He wassatisfied that his high standards would be upheld with Brad’steam. With this in mind, Mike agreed to sit in on each faceto-faceclient meeting with Brad to:• Personally hand over the case files;• Give his blessing to the deal;• Answer questions;• Review the specific client’s planning strategies that hadbeen set in motion; and• Help with the initial transfer paperwork.Building andManaging aFinancial AdvisoryPracticeThe American College’s “Building and Managinga Financial Advisory Practice” electivecourse GS840 is now available after a successful,well-received pilot program. It exploresthe concepts of improving the operational efficiencyand profitability of a financial advisorypractice. The course focuses on two major areas:How to increase recurring revenue, profitand repeatable processes; and how to structurethe practice in such a way that it can be sold formaximum profit, if applicable. The course concentrateson the eight essential business andoperational disciplines: client acquisition, clientmanagement, the consultative sales/planningprocess, case development, time management,communication and operations, education, andfinancial management. The final project for thiscourse is a comprehensive business plan containingeach of the disciplines, with a focus onincreasing the value of the practice.Look for a further discussion of the eight businessand operational disciplines in getting asense of your practice’s preparedness in thespring 2012 issue of The Wealth Channel Magazine.FALL 2011 | The Wealth Channel Magazine | 59

estate planningThis would be a year-long process and would help immenselyin making the transition a smooth one. In addition,Mike’s long-time assistant, Laura, would be available for sixmonths after the sale’s completion for additional questionsand research, as needed.compatibility of systemsAt the heart of preparing a practice for eventual transition arethe eight business systems. These are extensively explored inThe American College’s MSFS program’s “Building and Managinga Financial Advisory Practice” GS840 course (see sidebar,previous page) The eight business systems are:• Client Acquisition• Client Management• Sales Process• Case Development• Time Management• Communication and Operations• Education• Financial ManagementEach of these eight business systems can be scored by apractice assessment taken by the seller (and, optionally, withthe buyer) and a third-party consultant. The cumulative scoreof the assessment is on a 1,000-point scale, with 600 beingthe breakpoint for minimum transferability of a practice. Thehigher, the better. Mike and Laura took the assessment twoyears before the final sale to Brad (who wasn’t in the pictureat the time) and scored a 791, which indicated a sophisticatedpractice with highly transferable systems. This result had majorimplications in the next step.financial considerationsAssuring the continuity of Mike’s clients’ welfare answersBrad’s initial question, “Is it about the clients or is it about themoney?” Having established a values match, systems compatibilityand agreeing on a hands-on transition period, Mike andBrad got serious about the sale’s price. Here are the biggestdeterminants in what was to become the final contract:• Multiple of recurring income stream. At the core wasdetermining a two-year recurring revenue flow fromthe 120 planning clients. Mike’s assessment score of791 gave him latitude to ask for a multiple of 2.0 tothat base amount (an 800+ score would have allowed a2.5 multiple). This constitutes the good will factor.• A determination of what new business was identifiedand set in motion by Mike’s client management systemthat would come to fruition in Brad’s tenure.• Examining the mix of products and investments toidentify potential repositioning or replacement ofassets.• Other items to be included in the sale, such asfurniture, equipment, fixtures or software.• Mike’s needs in terms of structuring of the payout asincome. This is the arena for accountants, but bothparties agreed that treating the income as capital gainswas the best strategy.• Mike also agreed to a scale-back provision. Thisprotects Brad in case a pre-determined percentage ofthe 120 clients decide to defect.readiness for transferThe final stage of succession consideration is preparing thebuyer’s team for an influx of client re-papering. This can be ahuge undertaking. Think about it from a practical standpoint:Would your practice be ready to take on 120 new clients in thenext year while continuing to process new business plus communicatewith and service current clients? After having done anumber of these takeovers, Brad’s team is structured to executethe vast array of paperwork and integrate information, bothhard and soft, into their customer relationship management(CRM) system. Temporary help will be required that mightresult in additional hires once the dust settles.In my consultations over the years, it is not unusual to seean advisor who is inheriting a book of business (either unexpectedlyor by naiveté) of more than a hundred clients to betossed out of production for a year and into total disarray. Theroad to recovery from there is often a rocky one.Forewarned is forearmed. Going into a succession planwith eyes wide open is the purpose of taking the five stepsdiscussed in sequence.As a satisfied client of Mike’s and now Brad’s, I can attest tothis approach. And with my practice management consultant’shat on, it’s a stellar example of a win-win-win practice trifectafor Mike, Brad and me—the client.60 | The American College | FALL 2011

estate planningEnsuring BeneficiariesReceive Intended Assetsby Constance J. Fontaine, JD, CLU ® , ChFC ®> Learn distribution of property in ways that make senseConstance J.Fontaine, JD,CLU ® , ChFC ®Constance is anAssociate Professorof Taxation at TheAmerican College,as well as the holderof the Larry R. PikeChair in Insuranceand Investmentsestablished byUnion Central LifeInsurance Company/UNIFI.connie.fontaine@TheAmericanCollege.eduMost individuals, including thoseof modest means, think about whoshould receive their property itemswhen they are gone. Some will goso far as to tell the future recipientthat a particular item will, in time,belong to them. “Niece, I want youto know that someday my valuablecoin collection will be yours;”or, “son, you have always shownan interest in my priceless antiquearmoire and I’d like you to have itwhen I pass.” Unfortunately, themere telling does not necessarily fulfill the wish.Did the owner write the intentions down or formalizewishes in any way? Frequently, the niece isthe only one around when her uncle tells her thecoin collection is to be hers. Then, at the uncle’sdeath, she dutifully steps forward to announce,“Uncle told me he wanted me to have his coin collection.”The problem is that she may have to getin line with other family members who also comeforward to acquire the same asset, perhaps makingthe same claim or clamoring for the asset to bepart of the general residuary estate passing to othersmore closely related to the deceased. What aboutthe son’s siblings who also covet their father’s armoire?What if the siblings do not get along? Whatif a blended family is involved? Will they take theirbrother’s word concerning their father’s wishes forthe armoire on faith? Or will the armoire be thesubject of family conflict? Leaving a legacy of familydiscord is undoubtedly not what the uncle or fatherhad in mind.The best way to make sure intended beneficiariesreceive assets is for an individual to give it tothem outright during the individual’s lifetime. ItA specific bequest is a clause inthe will identifying one or moreassets or money amounts andspecifically naming the personwho is to inherit said assets.is quite difficult, if not impossible, for displeasedbeneficiaries to sideline outright gifts, especially ifthey were made years ago. Of course, this does notmean that some may not continue to begrudge thetransfer. In addition to having assets possessed bythose you want to have them, gifts made duringone’s lifetime can provide estate tax savings. Any futureappreciation generated by the gifted item is notgoing to be valued with the donor’s taxable estatebecause the value has been shifted to the recipient.If any gift taxes actually have to be paid becausetransfers exceed the $1 million lifetime gift exemptionamount and the $13,000 annual exclusion,those tax amounts generally are also removed fromthe original owner’s taxable estate. State death taxesimposed on property owned at death are saved, too.A donor may, however, be reluctant to make anoutright gift for a number of reasons. Perhaps theuncle still enjoys collecting coins or is not sure hisniece is mature enough to have the collection. Maybethe father still uses the armoire and is not readyto part with it yet. An owner may worry that he orshe could need the asset for its value later in life.One way to continue owning a possession whilesimultaneously ensuring the object’s eventual re-FALL 2011 | The Wealth Channel Magazine | 61

estate planningceipt by the desired recipientis to leave it througha special bequest in theirwill. A specific bequest is aclause in the will identifyingone or more assets ormoney amounts and specificallynaming the personwho is to inherit saidassets. A will can containmultiple specific bequeststo multiple beneficiaries.This thought, however, issomewhat thwarted by the fact that, according to a surveyconducted by AARP in 2000, only 40 percent of Americans50 years old or older have a will. Again, as with an outrightgift, specific bequests may prompt hurt feelings, resentment orbickering. Another issue concerning property passing under awill is the possibility that a will contest could be brought byone or more irritated beneficiaries. While only about five percentof will contests are successful, the time, expense and emotionalstrain occasioned by such efforts should not be ignored.Choosing the appropriate executor also helps to ensureintended beneficiaries receive specific property. The testator(person establishing the will) needs to think about who wouldbe willing to serve and whether he or she is capable of managingthe estate settlement process. There is often more to thetask than meets the eye. An executor should understand thatestate matters are not always smooth sailing. For example, supposesomeone selects one of their children to act as executor.Even if the child lives nearby while their other children do not,or is clearly more capable of handling financial matters, namingone child could be interpreted as favoritism by the otherKeep in mind that even if aperson establishes a living trust,it is advisable to have a will inplace for the distribution of anyoverlooked property.children. Adding salt to the wound, if the executortakes a fee for what may be very time-consumingefforts on behalf of the estate, the level of discontentamong the non-executor children may rise considerably.Some siblings could perceive taking an executor’sfee as a selfish depletion of inheritance moniesinstead of as compensation earned for fiduciary dutiesand responsibilities.Another way to alleviate a decedent’s concernsabout the passage of assets is by establishing a trust.Revocable trusts are vehicles frequently employed todispose of assets at death. A revocable or living trustis one in which trust provisions may be amended, ifnecessary. By havinga revocable trust, theproperty owner canremain in controlof the property viathe trust terms andmay, in certain instances,also be thetrustee. If the owneris trustee, theremust be a namedsuccessor trustee tomanage the trustproperty in case theowner-trustee becomes incapacitated and to take over the trustat the owner-trustee’s death. Although a revocable trust doesnot provide any tax savings, the value in the trust avoids probateand, therefore, is not subject to the fees associated withprobate. Prior to creating a trust, state laws concerning property,taxation and creditor’s rights should be reviewed. Broadlyspeaking, the cost of having an uncomplicated, basic, livingtrust drafted by an attorney is currently within the range of$1,000 to $2,000. The following are likely to affect the cost ofhaving a trust drafted:• Size and value of the estate• Types of assets involved• Complexity of trust provisions• Geographic locationIn addition, there may be on-going fees for maintaining thetrust. Keep in mind that even if a person establishes a livingtrust, it is advisable to have a will in place for the distributionof any overlooked property. A trust is much less likely to becontested than a will.62 | The American College | FALL 2011

Utilizing beneficiary designations for specificassets also proves to be an effective, inexpensiveway to reinforce final wishes. Most people arefamiliar with naming a beneficiary for insurancepolicy and retirement account proceeds. In additionbeneficiaries can be named for other assetssuch as bank accounts, certificates of deposit andU.S. Treasury bills, to name a few. This type ofarrangement may be referred to as a Pay on Death(POD) account or Totten Trust. The beneficiarydoes not have access to the account until an accountcontributor’s death. Structuring accountswith beneficiary designations is simple, as doingso requires only providing beneficiary informationand sometimes obtaining a guaranteed signatureor medallion stamp from the institution holdingthe assets.will contractAnother way to protect testamentary distributionschemes is by creating a Contract to Make a Will.In the majority of cases such contracts involve thesecurity of children’s inheritances that come up indivorce situations where one spouse or the courthas concerns that children of the marriage maylose their inheritances should one or both divorcingparents enter into a new marriage. Contracts,however, may also be a common objective for happilymarried couples striving to ensure passage oftheir marital value to the children of their union.These agreements can be broad or narrow. Theytypically state what a surviving spouse cannot dowith marital property within their possession afterthe death of the other spouse. For example, thecontract could stipulate that a surviving spousemay not title assets in joint tenancy with a laterspouse. As always, state law must be referencedprior to entering into such an agreement to makecertain the state’s requirements for a valid contracthave been met. A few states have statutes governingcontracts to make a will.Having assets pass to the objects of one’s bountyis a common desire of most property owners. Whilethere are numerous ways to do so, each methodshould be weighed and investigated carefully bythe gifting party to determine which device is bestsuited to his or her personal circumstances.A Family DiscussionIn addition to the more involved ways toensure the receipt of property by intendedbeneficiaries is the age-old, simple, inexpensivefamily discussion. It is during a familyget-together that property intentions can besecured in many situations by the psychologicaltug of moral duty. Thanksgiving or traditionalfamily gathering events may be theideal occasion. The father, mother or otherindividual whose will is in question shouldhost this family talk while he or she is stillhealthy and judged to be mentally competent.The nature of the discussion should notbe left to happenstance. Family membersshould know that they are coming togetherfor the purpose of learning his or her wishes.Having the discussion videotaped couldprove helpful in some cases.Once loved ones hear in person and in theindividual’s own voice how and why theywant their property items to be distributed,the family members are more likely to understandthe rationale, even if they don’t likeit. Being straightforward with adult childrenusually generates positive results. There istime to adapt and accept. Emotional reactionsare likely to be more manageable afteropen discussions while the testator parent isstill living than after death when everyone isgrieving and some questions must go unanswered.Once heard, most will feel obligatedto observe the individual’s wishes. Hopefully,the universal mindset becomes, “After all,it is what Dad said he wanted, and it is hisproperty.”FALL 2011 | The Wealth Channel Magazine | 63

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Section Contents: Perfection and the 7 Iron 68 Prospecting for Seniors 70 Grow Your Retirement and Business with Executive Benefits71 Is That Your (Unintentional) Retirement Advice? 74 Leadership Development – Why Take the Time? 76 Five Ways Advisors Can UseWholesalers to Get to Their Own Retirement 78dialogueGuaranteed Lifetime Income ProductsCEO of IRI shares her perspectiveby Stephen D. Tarr, MSM, CLU ® , ChFC ® , CAP ® , CASL ®Catherine Weatherford is president andCEO of the Insured Retirement Institute(IRI). She talks about IRI and its role in theassociation for the insured retirement incomeindustry.It’s a privilege to talk with you. You werewith the NAIC.Yes, 12 years.You were the longest standing person withNAIC as the executive vice president andCEO.That would be correct. The lifespan before I lasted12 years was about four years.I was the ninth insurance commissioner forthe State of Oklahoma and the first woman toserve in that post and the third statewide, electedofficial in Oklahoma as a woman.Now how many women insurancecommissioners are there nationwide?Maybe half. When I was insurance commissionerI think there were three of us in the nation. Butthat’s 20 years ago. We’ve come a long way.Tell me about IRI.We are the association of the industry that providesannuities and guaranteed lifetime incomeproducts. Our members complete the entiresupply chain of those providing those products,meaning we have the insurance companieswho manufacture the products; we have the assetmanagers who manage the subaccounts or,now, in the newer age, actually serve as partnerson the hybrid annuities; and then we have thedistribution community, which is major banks,wirehouses and broker-dealers, who distributethe product. And lastly, our members, we haveover 78,000 financial advisors in our databasethat have membership through their distributionfirm.This is the 20th anniversary of the associationthat came together to say that we needed to havean association focused on these products and thepeople that they serve. I came in three years agoat the time that everyone’s looking far down theroad into the future where you have 79 millionBaby Boomers marching toward retirement. Andwe have this tremendous opportunity over thenext 18 years and beyond to help increase lifetimeincome through the use of annuities intoFALL 2011 | The Wealth Channel Magazine | 65

dialogueholistic retirement plans. The demandis high and the need is high. The definedbenefit plan has gone the way ofthe dinosaur. People have to self-relyand self-fund their retirements, especiallyin post recession, and we’re allsitting here looking at this new supercommittee that’s going to be looking atthe entitlement programs that all BabyBoomers and all of these generationsafter them are looking at to help supplysome of that guaranteed income inretirement. We know there’s probablygoing to be some changes as a resultof America’s debt and the budget deficitthat we face every year. I think thatthese are the only products out thereon the market where you can get lifetimeincome—a paycheck for life, soto speak—other than if you happen tohave a defined benefit plan and yourSocial Security. So we call it mailboxmoney. The money you count on to beout there in the mailbox the first of everymonth.Ninety percent of the respondents whouse planners were very confident aroundretirement security.You have done some research onthe Boomers and we know that7,000 Boomers a day are retiring.We did an extensive piece of researchwith Woelfel Research earlier this yeararound Boomer expectations for retirement.It was very revealing in a postrecessionenvironment. From this industryand the products that people hadin their portfolios throughout the crisis,those who had an annuity in their portfoliothroughout the economic downturnand the downturn we’re in rightnow, nine out of 10 of those have a highconfidence in achieving their overall retirementexpectations and believe thatthey’re doing a good job in financiallypreparing for retirement. I think theguarantees and the living benefits thatare imbedded into these products thatprotect you against downside risk havereally shored up the confidence of thosepeople who held those. That’s one ofthe first and foremost pieces that, as advisors,we all need to really take a hardlook at.I think that’s very important, thatadvisors really need to drive homethis confidence and consistency ofthat mailbox money.Exactly. Another very important thingin retirement preparedness were thosepeople who did work with a financialplanner. Ninety percent of the respondentswho use planners believe that inworking with their financial plannerthey were doing very good and werevery confident around retirement security.So couple those two things together,90 percent satisfaction and highconfidence if you hold those insuredretirement products in your retirementportfolio and if you worked with a financialplanner to get that as a part ofyour holistic retirement plan. Your clientis going to be highly confident andvery happy with your services and theway that the portfolio has been built up.One of the interesting things in thisstudy indicated that a little less 50percent don’t have an advisor.That’s right. And we found those peoplewho do not use an advisor or a financialplanner today would like to have theadvice of a financial specialist. Theyare looking for a partnership to helpthem figure out this puzzle about creatingsome retirement security, especiallyafter the financial crisis and the loss ofconfidence they had.I notice that 41 percent use SocialSecurity as a major source and 43percent only as a minor source.Right. And I think part of that, is manypeople look forward to how their parentsfinanced retirement, and clearly thegeneration ahead of the Baby Boomersrelied more heavily on Social Security.But I think that’s where a financial advisorcomes in—sitting down and actuallypulling together every piece of savings,every piece of a workplace plan,every IRA, everything that they have—and then really figure out what doestheir retirement picture look like andhow is it that they’re going to put thatpiece of guaranteed lifetime income inthere. Is it Social Security plus an annuityto make sure that they meet allof those fixed expenses in retirement?That’s where I think baby boomersprobably also missed the boat. The lifespanof our baby boomers is going to faroutlast those of their parents and grandparents.I think that you’ve got to reallylook hard at that, that you have got tofinance retirement for a long, long time.One of the other things in thestudy—a third of the boomersexpect personal savings andinvestments to play a major role.And that’s sort of scary when youthink that 70 percent of the peopleout there do not think that whatthey have is going to provide amajor source of income for them.Well, I think all of the data across governmentand private research showsthat Americans have not prepared aswell for their retirement with personalsavings as they should have. And I thinkwhat we’re seeing now, especially in thedemographic at 54 to 65, is that people66 | The American College | FALL 2011

The guaranteed lifetime withdrawal benefit is the most valuedof all of the lifetime benefits.are having to totally rethink and replantheir retirement security; working longer,figuring out how they can now putmore money into their retirement savings.So while we see that number at 33percent, I think that number’s going togrow as everybody’s now had the greatwake-up call and one more reason forfinancial advice. The other thing thisrecession did that may impact that toois their 401(k)s were decimated with theinvestment losses, and, clearly, recentlywe’ve seen a second wave of that. Sothat also brings that number down toabout a third.Let’s talk about the guaranteedlifetime withdrawal benefit andwhat’s going on in the marketplacetoday with those kinds of products.We know the guaranteed lifetime withdrawalbenefit is the most valued of allof the lifetime benefits because it reallyhelps these people with that ability tomake sure that it lasts throughout thelifetime; they know those benefits aregoing to be there. So the addition is thatthese costs of these riders have remainedflat. So even though the benefits are becomingeven higher value, it’s not somethingwhere the price is going up.That’s interesting. Do you think thelifetime withdrawal benefit priceswill go up?No, I don’t. They’ve been in the marketplace;they’ve been deployed for 15, 17years now. The companies have done anexcellent job, I think, with pricing andwith managing, and they have done agood job and are continuing to do evena better job with their financial managementand their hedging strategy.The buzz is that people want totake a look at their fixed expensesand have that insured to makesure that they then can take careof themselves and then use thatadditional money to do things thatthey really want to do for fun andrecreation.With these lifetime benefits, now consumersand advisors are looking at themas the insurance piece inside of thatretirement portfolio. Well, your retirementsavings are a significant asset,too, and I believe these are now beingseen as a way that you put that insurancein there to make sure that all yourfixed expenses are met throughout yourlifetime, and the rest of your money isfor healthcare expenses, for other unexpectedcosts that come around in retirementyears—as well as for recreationand legacy and other things that peoplewant to take care of during their retirementand after they’re gone.Sure. So, what do you think arethe three major takeaways fromthe Boomer study from yourperspective?Well, I think the satisfaction level at90 percent of people who have an annuityis in there, so annuity ownershipis a strong indicator of retirement securityin a boomer’s perception of theirretirement security. The trait that theywant most in a retirement investmentproduct today is guaranteed monthlyincome throughout their life. Thirdly,I think it is that if they work with a financialplanner they’re also likely to bemuch more confident about their financialsecurity.Many people may not know aboutyour organization and what youdo, and I know your website, butif I’m not part of one of thoseorganizations that is perhaps amember, can I be an individualmember?At this point in time, we are a membershipof our advisors. We actually have78,000 financial advisors who enjoymembership in the organization, andthat is free to them through their distributionfirm’s membership. We areactually looking to have an individualadvisor membership and that’s underreview right now. If you’re not a member,there’s still a lot of stuff out on thepublic side of the website for advisorsaround what we provide. But back inthe membership side there’s research,there’s white papers, there’s education.There are consumer tips that have beenreviewed by FINRA. We have all typesof good content for the financial advisorin the members only website. So I sayif you’re a financial advisor, look at thewebsite to see if your firm, your bank,your wirehouse, your broker-dealer is amember. If you’re not a member, thenI’d say stay tuned.I know you’ve got retirementcalculators and planning resources.We have all of those—we have newslettersand retirement calculators and tipsheets. We have a lot of content, I think,that financial advisors could find herearound insurance company solvencyand financial strength and things likethat, too.FALL 2011 | The Wealth Channel Magazine | 67

practice managementPerfection and the 7 Ironby Charles C. Jones, MSFS, CLU ® , ChFC ® , CAP ® , CASL ® , AEP> Find out what it means to truly pursue perfection in the financial services businessCharles C. Jones,MSFS, CLU ® , ChFC ® ,CAP ® , CASL ® , AEPChuck is a memberof The AmericanCollege Board ofTrustees, and theAmerican CollegeFoundation Board.chuck@pentrust.comJust as the golf swing starts with a humblebeginning, so may a client relationship.Success in our profession requiresmore than good luck, perseveranceand hard work. Success requirespursuing perfectionA reminder of that pursuit sitsin my office—a 7-iron golf clubthat is jointed two-thirds of theway down the shaft. If not swungperfectly, the club head snaps tothe side and a golf ball cannot bestruck. As it happens, that is a greatanalogy for financial services, anexperience that revolves aroundthe application of stocks, bonds,insurance and annuities designedto satisfy the desires and needs ofa client.Many potential clients want toknow what you can do for them.Rather than you trying to explainthe litany of services and productsavailable, I suggest you answer thatquestion only after an in-depth interview.Do not be surprised if theclient’s main concern is retirementand the accumulationoffunds necessaryto allowa comfortablelifestyle. Accumulationof liquid assetsand our current economic condition appears tohave changed our personal goals from accumulatingthings to accumulating money. My personal experienceconfirms that, regardless of the wealth or cashavailability, everyone is concerned about not havingenough money to maintain the standard of livingwith which they have become accustomed.Financial service goes beyond an individualproduct sale. It requires extensive knowledge aboutthe client and the financial product environment.Your client’s stewardship is in your hands. Like the68 | The American College | FALL 2011

perfect golf swing, which is dependenton technical knowledge, practice andpassion, the financial product environmentmust be completely resourced andwell understood prior to implementationof the instruments available.True stewardship would suggest theprovider be licensed in all aspects ofsecurities and advisory services. Perfectionrequires knowledge of the subject.Commitment and perseverance are virtues fueled by the questfor success. For the true steward, personal and business successis measured beyond the commission or fee earned. It is measuredby client satisfaction; that is the ultimate quest. Achievethat and financial rewards follow.Golf requires an understanding of the course, the ball, thegrass, the field of play—but without a proficient swing, it isjust about whacking the ball. Without true understandingof service to each client, financial services becomes merely anumbers game.Financial service practitioners identify themselves by manynames depending on the company they represent or the firmwith which they become licensed. Some people create clientfulfillment with the limitation of only mutual funds or stockbrokerage accounts. Some utilize only life insurance and lifeinsurance company products, such as an annuity and its manyvarieties. For the producer, success is measured in terms of theincome or commissions earned, the products sold, the volumeof life insurance placed into the market or cash value amountof annuities sold in a given year.These measurements of income and sales ability further theindustry quest. The industry and most clients’ quest is growingmoney under management. Your quest must go beyondthat. Your obligation is one step beyond determining howmuch money you place into a given product; it is serving theneeds of the client.Financial service means understanding the client. It is yourcomplete understanding of the clients’ needs—their dreams,their legacy, their capabilities, their economic and family circumstanceand educational awareness of the financial worldin which we practice. Only then can we render the financialservice completely. My practice indicates that it may take twoor three years working with the client before we can achievethat synergy.Just as the golf swing starts with a humble beginning, somay a client relationship. That humble beginning may startwith the satisfaction of a client’s request of a product or fulfillmentof a specific need. A key life insurance placement in aYour obligation is one step beyonddetermining how much money youplace into a given product; it is servingthe needs of the client.company or the funding of a buy-sell is similar to placing thegolf ball into the cup on the green. One stroke can determinethe outcome of the whole game, or open the door to a morecomplete resolve. The putt requires a technique much differentfrom the full swing. However, knowledge of the puttingstroke, the green and successful application of the single strokecan lead to a more well-rounded golf game. That pursuit of awell-rounded knowledge of your client is required to assureproduct placement and client satisfaction. Retirement planningis more than the actuarial equivalent of present value cashin order to retire. It used to be $1,640 for each $10 of monthlyincome. I point out to clients that a monthly Social Securityincome of $1,000 is equal to a cash account of $240,000 earning5 percent per year—a good place to start a building blockto understanding.The complexity of the financial services industry, and thedetail of specific client needs, often requires a practitioner tobecome an expert in several financial services. In my experience,pension plan design, implementation and managementrequire extreme discipline, dedication to client needs andknowledge of the financial products necessary to fulfill thoseneeds. Government rules and regulations may require workingwith other specifically trained individuals to deliver the best toyour client, which works in much the way playing golf withanother experienced golfer can raise your game.Legacy planning and retirement planning may require theservice of attorneys to prepare legal documentation and accountantsto prepare the tax forms. I always remind the clientthat the only person at the table concerned about theirfinancial well-being is me, the financial services person. I havehad council in the past suggest that the client has enough cashto pay the cost of transfer, but I am there to remind themthat life insurance is a 10-cent dollar and the dollar return istax-free and always available, even at an unknown point intime, which is a concept the client and their bank seem tounderstand.Perfection is achieved when your client requests that younever leave them and you have reached your personal goals. Asthey say in the game, “Hit it straight.”FALL 2011 | The Wealth Channel Magazine | 69

practice managementProspecting for Seniorsby I. David Cohen, CLU ® , ChFC ® , LUTCF> Get tried and true techniquesI. David Cohen,CLU ® , ChFC ® ,LUTCFDavid is a 47-yearmember of theMDRT and hasserved as Presidentof both theColumbus NAIFA& FSP chapters.David has devotedhis entire careerto developinginnovativeprospecting andsales techniques.idavid@pmfinancial.comWhen was the last time you turned on the televisionand saw an advertisement for the Clapper (lights goon with the clap of your hands), or the one withthe woman saying, “Help, I’ve fallen and I can’tget up!” ® (for Life Alert, ® the personal emergencyresponse system)? Chances are, you have not onlyseen them, but seen them many times.Those commercials and many others like themmake us laugh and provide great monologue materialfor late night talk show hosts, but it seems everytime we turn on the TV, listen to the radio or pickup a newspaper we are directed to pitchmen tryingto sell us something. Who is the us? Why, SeniorCitizens of course. I know this because I am one.Why are we targeted? That’s easy. We are the onesector of American society that actually has money.Madison avenue knows this, and so do all the insurancecompanies, healthcare providersand hearing aid companies. Yousee, at age 76 I have been aroundthe block a few times. I have alsohad the privilege of working withthis marvelous group of people forthe past 53 years. As a life insuranceprofessional, I can attest to the factthat there is no better group of clientsto have.You need to understand a fewthings about our group. With 43million of us in America, we represent12 percent of the entire U.S. population. Mostof us are married, and, as we get older we movecloser to needing greater care and upkeep. Becauseof us, nursing care facilities are overflowing today.My generation is very different. We grew up duringthe Depression, therefore we understand theimportance of savings. Many of us fought in warslove to tell war stories as though they just happened.We are not bragging, we simply can’t remember thatwe just told you the same story 20 minutes ago.Even so, we are a pretty sharp group of folks. We arefamily oriented, patriotic, God-fearing and, most ofall, we get it. And if you are going to call on us, youneed to understand that less is definitely more.Talk less and listen more. So prospecting skillnumber one is: You must be a great listener. Youmust demonstrate genuine interest in what we say.You cannot fake it. If you do, we’ll know. My dearfriend and retired advertising executive, EugeneHameroff used to say to me: “David, if you listento your clients long enough, they’ll tell you whatthey’re gonna buy!” How true that is.Prospecting tip number two: We love free meals.Now there is a catch here. If you are going to feedus, you have to get to us early. Breakfast or lunch isProfessional prospectors today need to focus on thelaw of being smarter rather than the law of large numbers,as we did in the earlier days of financial servicescareers. The American College offers a “Techniquesfor Prospecting: Prospect or Perish” course, basedon I. David Cohen’s book, Prospect or Perish, to helpbuild ever-more-important prospecting skills. Morethan 10,000 financial services students have taken thecourse in the last four years.ideal. After all, we get up at the crack of dawn. Ifyou wait until after 3 p.m. we’ll still be in need of anap and sleep right through your presentation.Prospecting tip number three: We need help inunderstanding all this healthcare stuff. Researchvarious associations, charitable boards and volunteer-basedorganizations that we enjoy sharing ourcontinued on page 7370 | The American College | FALL 2011

practice managementGrow Your Retirement andBusiness with Executive Benefitsby Albert J. “Bud” Schiff, CLU ® , CAP ®> Learn how offering executive benefits can be a win for you and your clientsYou are a successful financial advisor.You have strong relationships withyour clients, and they look to you tohelp with their challenges and opportunities.You can enhance yourpractice and demonstrate the valueyou bring to clients by adding executivebenefits as a retirement and/orbusiness-planning tool.Executive benefits areconsistently viewed as criticalto success in the managementtalent marketplace.Albert J. “Bud”Schiff, CLU ® , CAP ®Bud is the ChiefConsulting Officerand Former CEOof NYL ExecutiveBenefits (NYLEXBenefits), asubsidiary of NewYork Life InsuranceCompany.budschiff@nylexbenefits.comwin-win executive benefitsGrowing your practice with executivebenefits planning can be a win for you and foryour client:• Outstanding service to your client.• Substantial initial and recurringcommissions from plan funding vehiclessuch as company-owned life insurance(COLI).• And the best part—program participantscreating an inventory of warm prospects foradditional personal planning services andproduct sales.client challenges areyour opportunitiesOne major challenge facing your business clientsis how to attract and retain key people. Executivebenefits are consistently viewed as critical to successin the management talent marketplace. Infact, a 2009 survey, “Executive Benefits—A Surveyof Current Trends” by Clark Consulting, examiningtrends in Fortune 1000 companies foundthat 85 percent of responding companies hadimplemented nonqualified deferred compensation(NQDC) plans and 67 percent reported havingsupplemental executive retirement plans (SERPs).In addition, many companies are exploring payfor-performanceincentives to drive productivityand growth. Executive benefit plans often includeperformance measures.At the same time, one of the primary challengesfacing executives in retirement is having adequateincome to maintain their pre-retirement lifestyledespite participating in the broad based employeebenefit plans offered by most employers. Incomeand benefit caps in Social Security and employersponsoredqualified retirement and savings plansdiscriminate against highly compensated individuals,limiting the percentage of retirement replacementincome from these sources.To help close the retirement income gap, individualsneed other income sources such as:• Personal savings;• Earned income from working beyondretirement; and• Employer-sponsored pension, deferral andsavings plans (qualified and non-qualified).FALL 2011 | The Wealth Channel Magazine | 71

practice managementthe retirement income gapThere is a huge opportunity now foradvisors to help clients develop andimplement smart retirement strategies.Income replacement ratio analyses areoften used to project the percentage ofpre-retirement income an individualneeds in retirement to maintain a desiredstandard of living. By using theseratios as a benchmark, employers canmeasure the sufficiency of their ownsupplemental programs when combinedwith Social Security benefits andqualified benefits such as 401(k) plans.As Chart 1 demonstrates, the higherthe individual’s pre-retirement compensationlevel, the more severe theretirement income gap can be.Chart 1Retirement Replacement Income as % of Current EarningsTarget Replacement Income – 85%Based on a participant beginning at age 45, retiring at age 65, assuming 2011 Social Security maximumcontribution based on $106,800 wage base; and 401(k) contributions at 7 percent of compensationup to the 2011 statutory maximum of $16,500, plus, beginning at age 50 the 2011 maximumcontribution plus catch-up of $22,000, accumulating at a hypothetical growth rate of 6 percent.closing the gap withexecutive benefit plansSupplemental executive programs may be the solution yourclients are seeking. Chart 2 provides an overview of currentnonqualified plan options that can help employers addresstheir challenges and help highly compensated employees closethe retirement income gap:Chart 21Executive chooses “shadow” investment options for his or her account. The account is treated as if it had been used to purchasethose specific investments and had participated in the income from the growth or decline in value of such investments.2If excessive premiums are paid into a life insurance policy, it may become a Modified Endowment Contract (“MEC”). An MECpolicy loses some of the tax advantages of life insurance. There is a 10 percent penalty for withdrawals prior to age 59 ½. Taxableearnings come out first if withdrawals are taken and a loan is considered a withdrawal.3Life insurance cash values can be withdrawn up to basis tax-free and loans on remaining cash values can be taken tax-free ifproperly structured. Nonrecourse loans and withdrawals reduce the cash value and death benefit. Loans, depending upon theinsurance carrier, accrue an interest credit, which can partially or completely offset interest charges to the participant’s account. Ifthe interest credit equals the loan interest rate, it can effectively be a zero net interest loan.4Life insurance death proceeds and cash values are protected from company creditors and, in most states, personal creditors.5Taxable to employee upon vesting, not receipt of benefit.financing benefit programs with coliNon-qualified benefit liabilities by law must be unfundedcompany obligations. Companies often seek to accumulatededicated assets to meet those obligations and to help offsetthe impact of those obligations on the company’s balancesheet and earnings statement. The most common approachesin these situationsare taxable investments(for example,mutual funds orequities) or a COLIarrangement.When taxable investmentsare used,the company, as theowner of the investment,is taxed eachyear on dividendsand capital gain distributions,as well ason gains reportedfrom sales of theinvestments themselves.Additionally,depending on thecompany’s accountingmethod, growthin the value of the72 | The American College | FALL 2011

investments may not be recognizable on the company’sfinancial statements until the investments are liquidated.Thus, the value of the assets recorded may be out of balancewith the liability to employees, even if the companypurchases the investment in an effort to closely matchthat liability.In a COLI arrangement, an employer purchases andowns a policy or policies on one or more of its employees.When the insured dies, the employer uses the deathbenefits to offset the costs of employee benefit programs.Potential earnings (the inside build-up of cash values) areallowed to grow and can offset the employee benefit liabilitieson a company’s balance sheet. COLI is gearedto the long-term nature of benefit plans and can providesome assurance to employees and investors that the companyis making promises it can afford to keep.For these reasons, many companies choose COLI arrangementsto finance their unfunded obligations. Potentialgrowth within a COLI arrangement is tax deferred.Companies can generally access the cash value income taxfree through withdrawals up to the owner’s basis in thepolicy and policy loans. (Note: Withdrawals and loansreduce the cash value and death benefit. Loans accrue interest.)Proceeds received upon the death of the insuredare also income tax free to the company. In addition, thecompany will recognize tax-free earnings in its financialstatements each year equal to the increase in the COLIcash surrender value or death proceeds received, net ofpremiums paid.The possibility of the higher net after-tax return togetherwith the ability of the company to recognize currentlyfor financial statement purposes any investmentearnings, demonstrate the potential tax and accountingadvantages of choosing COLI as a financing vehicle fora company’s unfunded benefit programs. This also explainswhy, based upon the Clark Consulting survey, approximately72 percent of companies who funded theirnonqualified deferred compensation and supplementalexecutive retirement plans reported that their plans werefinanced with COLI.driving practice growthwith executive benefitsYou can drive growth and success for your practice withexecutive benefits planning. In today’s challenging businessenvironment, executive benefit plans offer an effectiveand efficient way to help your clients attract executivetalent and keep their teams productive.continued from page 70Prospecting for Seniorstime with. Offer to provide a workshop to teachus how to make sense of all our medical bills,insurance policies and various options. Help usto get organized and make our portfolios easierto manage. Show us how to save more money byspending less of what took us more than 50 yearsto sock away.This brings me to prospecting tip numberfour: Teach us how to make our nest egg workharder and smarter. Don’t put us onto an annuitysales prospecting list. Instead put us onto the“educate us” prospect list. Here is a killer idea,so I hope you’re paying attention. Ask two orthree of your senior clients to invite two coupleseach to a private dinner. Once you arrive at therestaurant and after the first round of drinks isserved before dinner, thank everyone for comingand then scram! Let your clients and their friendsenjoy dinner on you—without you there. Whileserving dessert, have the server also distributepersonal invitations that you provided to him/her before your guests arrived inviting your newprospects to a private, no-cost financial planningsession with you to discuss their concerns andobtain some free directional advice. After youleave the dinner table, you will be the talk of theevening because of your generous hospitality.In other words, this event effortlessly increasesyour credibility among your prospects as well astheir trust level. You will also indirectly cause anatural decrease in the buying tension that manynew prospects tend to feel. Follow up with eachnew prospect the next day to thank them for beingyour guest and to set the appointment forthe free consultation. Eight out of 10 guests willwant to consult with you. From that point forward,remember, less is more—and listen.FALL 2011 | The Wealth Channel Magazine | 73

practice managementIs That Your (Unintentional)Retirement Advice?by Michael E. Kitces, MSFS, CLU ® , ChFC ® , CASL ® , CFP ® , RHU ® , REBC ®> Find out if you’re unintentionally leading your clients down an uncertain retirement pathMichael Kitces,MSFS, CLU ® , ChFC ® ,CASL ® , CFP ® , RHU ® ,REBC ®Michael is theDirector of Researchfor Pinnacle AdvisoryGroup, a privatewealth managementfirm located inColumbia, Md.michael@kitces.comIf there’s one thing that has remained certain in thisdecade of difficulty, it’s the gold standard advice forretirement planning: Save a healthy amount of yourincome, start young, invest steadily, and you’ll beable to retire when you want to and enjoy the standardof living for which you hoped and dreamed.Yet the reality is this model of retirement planningadvice is actually far more speculative than we haveever acknowledged, and might be better summedup as: Save for decades, build a base, and then inthe last few years quickly double your wealth withinvestment growth and retire happily. We’d neversay that to our clients, but that’s really exactly whatwe’ve been recommending all along!In principle, the answer to “How much should Isave to retire?” is one of the easiest and most basicmath problems in financial planning. A 20-something-year-oldclient comes in and says that she’dlike to retire in 40 years with $1million, and wants to know how tosave and invest. The advice is simple;we pull out the financial calculator,enter a modest growth rate(perhaps 8 percent for a balancedportfolio), a 40-year time horizon,a future value of $1 million, andpress the payment button to solvefor the amount of annual savingsrequired. The screen tells us the solutionis to save about $3,600 peryear, or $300 per month. Armedwith this guidance, the young clientgoes on her merry way to a safeand successful path to retirement,comfortable in the knowledge that40 years of diligently saving andinvesting $300 per month in a balanced portfoliowill get her to her goal.What we’ve actually done is guide the client towarda slow, steady accumulation path for the firstfew decades of her working career, building an investmentbase that she must quickly double up inthe last few years to have any hope of achieving her$1 million retirement savings goal on time. To understandwhy this is the case, here is a simple chartshowing the client’s accumulation over the 40-yeartime horizon using the basic assumptions previouslymentioned:Compounding growth is a pretty amazing thingand, as financial planners, we often extol the powerof compounding over long periods of time. Yet wealso forget just how powerful compounding canbe—or is assumed to be—over short periods oftime as well.accumulated wealth74 | The American College | FALL 2011

For example, as the chart reveals, while the client has indeedaccumulated $1 million by the end of the 40-year timehorizon, it’s notable that after 30 years, the client still has lessthan $450,000. And, of course, at that point the impact of amarginal $300 per month of savings is fairly negligible; theclient will only succeed in closing the gap to her $1 milliongoal in the final decade because of the investment returns.With an assumption of just 8 percent in growth, the classicrule of 72 means the client will double her wealth in nineyears. Accordingly, what this traditional savings approach reallysays is that the best way to have $1 million in 40 years isto have $500,000 in 31 years, and then quickly double yourmoney in the last nine years and retire happily. There’s justone problem; this directly contradicts the reality that whilemarkets may deliver average returns over a very long timehorizon, it is highly uncertain that they will deliver a preciseexpected 8 percent growth rate on a balanced portfolio overany specific nine-year time period.This is the challenging reality thatmany clients have been living out forthe past decade; no wonder so manyretirees are looking at their portfoliostoday and wondering how they’llever be able to retire! Our advice toa client who planned to retire sometimearound 2010 was to accumulate$400,000 to $500,000 over the first30 years of their lives, and then use the2000-2010 decade to quickly doublethat wealth to their $1 million retirement goal. What happenedinstead? The markets delivered virtually flat returnsover the decade, and although the balanced portfolio generatedvery modest positive returns, it was still nothing close to thereturn necessary to double an entire portfolio in nine years.Unfortunately, dutiful, ongoing savings in the final decade of$300 per month did little to make up that half-million-dollarinvestment return shortfall.What does this tell us? We are probably far too reliant oncompounding to work, and we rely on the biggest part of thecompounding curve to hit exactly when we need it—if wedon’t actually get that last doubling of 8 percent per year forthe final nine years, the retirement plan can be dramaticallyoff track. In response, that means some clients might wish tosave more, while others more will at least need to acknowledgehow remarkably uncertain their actual retirement date will beHave you been unintentionallygiving your clients iffyretirement advice?when committing to a saving/accumulation plan of this nature.In point of fact, this may actually help to translate theimpact of statistical volatility into a much more tangible resultfor clients. Aiming for higher returns and allowing for morevolatility may give you an earlier retirement date on average,but it makes the exact retirement year highly uncertain dueto the increased risk. For many, the simple conclusion maybe that saving more and aiming for a lower return, is a moredesirable path.So what do you think? Should we be communicating accumulationplanning differently to clients given how much ourprojections actually rely on tremendous accumulations fromcompounding in a very limited number of years at the endof a long accumulation/financial planning projection? Haveyou been unintentionally giving your clients iffy retirementadvice?FALL 2011 | The Wealth Channel Magazine | 75

practice managementLeadership Development –Why Take the Time?by Gerald Herbison, MSM, ChFC ® , CASL ® , CFP ® , CLF ®> Learn how to gauge yourself as a leaderGerald Herbison,MSM, ChFC ® ,CASL ® , CFP ® , CLF ®Gerald is AssistantProfessor ofManagement andCLF ® Director at TheAmerican College.He is currentlyworking on hisdoctoral degreeat WilmingtonUniversity.gerry.herbison@TheAmericanCollege.eduThis is the first in a series of management/leadershiparticles. We will beaddressing the issues, questions and solutionsfacing both traditional field leaderswho hire and train sales people, andinsurance/financial services professionalswhose success depends on a strong supportstaff.Management and leadership bothencompass getting things done throughothers. Managers and leaders are notmeasured on what they, as individuals,produce. They are measured and rewarded (or penalized)for their team’s results. Leaders can’t do italone. Leadership vision, mission, strategies, objectives,change initiatives—these all require interactionwith people who will ultimately help the leadermake it happen.Leadership and management are linked but consistof distinct skills. Leadership is concerned withcreating and communicating vision and mission,and driving the culture of an organization. Managementis focused on effective execution of tasks.Management has somehow become a dirty word.Nobody seems to aspire to excellence in management.However, Peter Drucker, one of the pioneersof the field, said that excellence in management isa necessary precursor to excellence in leadership.Without great managers, or at least managementskills, organizations will get nothing done. A finalyet critically important distinction is that manageris a job title given to someone by an organizationand leader is a concept only awarded by willingfollowers. If someone looks over his or her shoulderand no one is there, that person is not a leader.Some of the most influential leaders are often inThe top 35 percent of leadersfor whom people wouldwillingly go back to work arenot pushovers.the middle of an organization, not necessarily atthe top. For the sake of simplicity, for the rest ofthe article, I will use the term leadership instead ofswitching back and forth.Most of us received training for specific job skillswhen we began our careers—computer, sales, customerservice, etc. When we become leaders, atthe point where we begin to affect more than justour own results, development opportunities oftenbecome scarce. Why is leadership development soimportant? Leadership consultant Dr. Gordon Curphycreated a simple exercise highlighting the criticalreasons for leadership development.1. List all of your previous managers.2. Place a checkmark next to the names of themanagers for whom you would willingly goback to work.3. Calculate the percentages.The average person would willingly go back towork for about 35 percent of previous managers.The problem is that more than 85 percent of managersthink they are above average. That means that50 percent of managers are wrong about their ability.In which group are you? The purpose of devel-76 | The American College | FALL 2011

opment is to help more managers and leaders into the topgroup and to shorten the learning curve.Leadership skill can be developed. Top leaders make an intentionalstudy of leadership. They look for learning in all oftheir experiences, and they are always looking for opportunitiesto learn. Leaders who are looking for opportunities tolearn are not sitting back and saying, “We have always done itlike this—it works!” Learning leaders are willing to put themselvesin positions of uncertainty, to take chances.The top 35 percent of leaders for whom people would willinglygo back to work are not pushovers. When asked abouttheir characteristics, people often describe the leader as someonewho pushed them to reach their highest potential, notsomeone who took it easy on them. Future articles in this serieswill explore the traits and skills of these high-performingleaders.There is a simple way to determine how you are doing asa leader. We call it an informal 360. Ask your boss, two peersand several followers to answer the following questions as theyrelate to the productivity of the business unit:• What should I continue doing?• What should I start doing?• What should I stop doing?The rules are simple. First, the responses must be gatheredverbally; face-to-face is best, but the phone will work as well.E-mailed responses are essentially worthless for this exercise.Second, Vegas rules apply; there can be no retaliation for anycomments. Tell the respondents this rule up front. Finally,do not defend yourself during the conversation — just listenand prompt further comments. If you jump in and explainwhy you do something it will shut down the conversation.The purpose of this exercise is two-fold: The feedback can bevery beneficial, and, more important, it will let you know ifyou are the kind of manager people feel comfortable tellingthe truth. If you can’t get respondents, especially followers, togive you corrective feedback, they are afraid of your reaction.Honest lines of communication are critically important tothe long-term success of leaders. I have instructed and debriefedmore than 300 managers on this exercise over thelast two years, and the revelations are often astounding. Tryit and feel free to share your experience with me. Many managersdo this exercise quarterly or semi-annually (rotatingrespondents) to ensure open lines of communication.The first step in excellence in management is self-management.Once you become a manager it is not just aboutyou getting your own job done. Your behavior, attitudes andmoods affect your whole team. One of my students told theclass about his first, very moody sales manager. The sales manager’sassistant would put a green or red sticky note on the topof her computer monitor to indicate the manager’s mood. Thesales team learned to limit interaction on red days. Do youwant your team to monitor and limit communication withyou because they fear how you might react on any given day?Or are all of your days red days? Do you know yourself as aleader?Daniel Goleman is considered to be the authority on emotionalintelligence, having written several books on the subject.Emotional intelligence is a combination of self-awarenessand the awareness of our effect on others — and the abilityto consciously control both. Before we can effectively manageothers, we must be able to manage ourselves. The challengefor many leaders is that introspection takes time and courage.When we peel back the layers, we may not like what we find.Leaders who are willing to take a hard look at themselves, andthen do something about what needs to be fixed, are less likelyto be derailed.The Dr. Gordy test is from, Leadership: Enhancing the Lessons of Success, 6thedition.FALL 2011 | The Wealth Channel Magazine | 77

practice managementFive Ways Advisors Can Use Wholesalersto Get to Their Own Retirementby Robert Shore> Ways wholesalers can help make your journey to retirement smooth sailingRobert ShoreRob is the CEO ofshorespeak, LLC andWholesalerMasterminds.com.He coaches financialservices distributionprofessionals andpublishes I CarryThe Bag…theofficial magazine ofwholesaling.shorespeak@gmail.comThis past July, SunAmerica, in collaboration withAge Wave, released a study entitled Retirement Resetthat looked at the views of Americans and theirretirement post-recession. The following statementappeared on the official Retirement Reset website(retirementreset.com):“Americans have emerged from the economic recessionwith a new set of expectations around thepurpose, timing and funding of their retirement.Not only is retirement being postponed, but it nolonger means an end to working—retirement isnow a new chapter in life.”Among the study findings:• Almost two-thirds of those surveyed say theywould ideally like to remain productive andinclude work in retirement.• 85 percent say they now appreciate theimportance of quality relationships withtheir friends and family even more after therecession.• Financial peace of mind is now six timesmore important than accumulating wealth;82 percent name it their key financial goal.So, are the retirement expectations of the practitionersin the financial services community anydifferent than those of the clients they serve? Howcan advisors use the services of product partnersand their wholesalers to navigate their own journeythrough retirement, however they choose to defineit?Here are five ways to ensure that your retirementvision becomes your reality by using the resourcesof your product partners, and their wholesalers,most effectively:form meaningful partnershipsWholesalers, like advisors, are charged with runninga profitable business. This means they need to keepa keen eye on the time they commit and the dollarsthey spend vs. the assets that they raise. When advisorsmake requests that involve wholesaler time orbudget money, the numbers need to add up.For example, if you are using the Foonman SmallCap Africa Utility Fund and have pledged your supportto the Foonman wholesaler, the natural questionbecomes how much money can you ever raisein a niche product such as this—perhaps 1 percentto 2 percent of your overall allocation? Conversely,if you have committed your support to the Foonmanwholesaler for the Foonman Mega Cap 100, afund that might get 10+ percent of your flows, youshould expect a more meaningful level of support.Choose a finite number of product providers(subject to periodic performance review) and pledgeyour support. In return you’ll receive access to thefinancial, intellectual and marketing resources ofthose firms.understand thewholesaler’s unique valueOne of our clients is a client acquisition specialist.He prides himself on his ability to meet jointly withadvisors and clients to close sales. Another client is apractice management expert who features her abilityto help advisors convert their books of businessfrom commission to fees. Still another client has aburning passion for assisting advisors with portfolioconstruction and, as a CFA and former portfoliomanager, is well qualified to have those discussions.78 | The American College | FALL 2011

As with any relationship in our lives, communication iscritical—and wholesalers are working overtime to forma great relationship with you.What is the unique value that your wholesaler brings toyour practice? Are you leveraging that ability to your firm’sgreatest benefit?cooperatively plan businessWe coach our wholesaler clients to have significantly meaningfulbusiness planning sessions with their top tier of advisors atleast annually. For those sessions to be most productive thefinancial advisor needs to transparently share his or her annualbusiness plan. Doing so allows for a detailed discussionabout the advisor’s plans for, and the wholesalers support of,the following:• New business development activities• Marketing programs• Existing client events• Educational opportunitiesThese discussions must include production objectives thatthe advisor has set for his or her practice. Without the knowledgeof the empirical opportunity, the wholesaler has no baselineto gauge the ongoing health of the partnership.conduct quarterly checkpoint sessionsIf you have any employees in your practice, you know the importanceof checkpoint meetings. These are the quarterly, perhapssemi-annual, occasions where employees have a sit downwith their boss and review the goals that were outlined in thelast annual review. These meetings provide an opportunity, ina less formal setting, to discuss what’s going right and whereimprovements can be made.Do you have these checkpoint meetings with your wholesalers?These discussions should cover, at a minimum, thesesix issues:• Contact frequency – Are the wholesaler and theirinternal partner offering too much or too little contactwith you and your team members?• Product selection – How are the products that you’reusing from the wholesaler’s firm working so far?Are there changes that they’d recommend based onperformance or upcoming product changes?• Event planning – What progress are you makingwith the client events that you jointly discussed inthe annual business plan? Is there a cost update orrenegotiation that needs to happen?• Referrals – Advisors love referrals, and so dowholesalers. This is a great setting for the wholesalerto ask for recommendations of like-minded advisorswho would be interested in the business consulting andproduct solutions that the wholesaler offers.• Threats – Are you being tempted by another suitor(a.k.a. another wholesaler)? This meeting presents agreat time, in the spirit of partnership, to discuss what’stempting you.• Production – Checkpoint meetings provide the rightopportunity for the wholesaler to review where youstand in production versus the commitments made atthe beginning of the year.ask for what you wantAmong the many superpowers wholesalers possess, mind readingis not one. As a result, you should be clear about what theirexpectations of wholesaling partners are.If you don’t like internal wholesalers to call and thank youfor your business, let them know. If you have an aversion towholesalers dropping in to leave sales ideas, let them know. Ifyou prefer your wholesaler visit you every third Thursday of aquarter, let them know.As with any relationship in our lives, communication iscritical—and wholesalers are working overtime to form a greatrelationship with you.Whether your plan for retirement from the business ofoffering financial guidance to clients has more traditionaltrappings (such as selling the practice and sailing off into thesunset) or you are committed to the longest of long hauls, understandingthe best ways to utilize the services of your professionalproduct wholesaler will make that path to a profitableretirement a more rewarding journey.FALL 2011 | The Wealth Channel Magazine | 79

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Section Contents: Women Need to Think Beyond Today 84 Evolving to Fee-Based Compensation in the Retirement Plan Business 86 Supporting Retirement Income Clients 89researchWill Your Client’s Public DefinedBenefit Pension Plan Disappear?by Karen Eilers Lahey, Ph.D.> Risks and considerations associated with a public defined benefit pension planKaren Eilers Lahey,Ph.D.Karen is Professorof Finance at theUniversity of Akron,a Charles HerberichProfessor of RealEstate, a FitzgeraldInstitute Fellow inEntrepreneurshipand a memberof The AmericanCollege’s Board ofTrustees.klahey@uakron.eduAttendees at a meeting of retirementexperts and financial services industrypractitioners at The New YorkLife Center for Retirement Incomeearlier this year discussed a definitionfor retirement income planningand pointed out the difficulties ofswitching from the accumulationprocess to the decumulation process.Added to that difficulty is therisk facing both individual governmentworkers and state and localgovernments in financing and paying benefits forworkers who retire with a defined benefit (DB)plan. How can a financial planner help a clientplan for the possibility that once retired theirbenefits will be reduced or stopped altogether?The answer to this question is, as always, thatit depends on the individual circumstances of theclient and his/her spouse or partner. Recent statisticsfrom the U.S. Census Bureau report thatin 2010, 56 percent of individuals 65 or olderwere married. This age group accounts for 13percent of the U.S. population and their medianincome in 2009 was $31,354 vs. $49,777 for allhouseholds, indicating that projected retirementincome may be lower than current income. A totalof 42 percent of employed individuals whoare 65 or older are working in management, professionaland related occupations, and that mayprovide an opportunity for your client to worklonger. However, only 16 percent of people inthis age group were in the labor force in 2009.Behavioral finance suggeststhat investing decisions aremade based on feelings andperceptions.There were 74 men in this age group for every100 women, and for those 85 or older the numberof men dropped to 46 for every 100 women.It is reasonable to assume that the female spousewill on average live longer than her husband andmay have even more reduced income when thatoccurs.For a hypothetical example, let’s assume thatyou are providing retirement income planningfor a couple who is turning 65 this year and atleast one of the spouses is a government workerwho has earned the right to a DB pension planbased on 30 years of service. How will the decumulationplanning change if there is a risk thatthe DB plan will stop paying benefits or will reducethe benefits during the remaining lives ofthe clients? First, the couple must understand therisks they face with their planned retirement incomeand the additional risk of potential reductionor loss of DB plan benefits.Joseph Jordon, Dan Weinberger and JoelFranks at MetLife recently published a pamphlet,FALL 2011 | The Wealth Channel Magazine | 81

esearch“Engaging Clients in a New Way,” for financialprofessionals focused on the behavioralfinance aspects of retirement income planning.They suggest that it is important to notonly provide retirement income planningbut to also involve the client in the decisionson income and expenditures. In addition,knowledge about the risks they face in retirementshould be provided as well as listeningcarefully to their attitudes and feelings aboutthe remainder of their lives.Modern portfolio theory is the theoreticalbasis of the accumulation phase of retirementplanning and relies on concepts such asdiversification through asset allocation andminimizing taxes and fees throughout theworking years by making rational decisionsabout investing. Behavioral finance suggeststhat investing decisions are made based onfeelings and perceptions, which may be irrationalat times, such as buying high andselling low or preferring less return for morerisk. How does the financial professionalbring both of these concepts to the table inhelping our hypothetical clients with retirementincome planning? By recognizing theneed to involve both the clients’ feelings andattitudes as well as providing analytical backgroundto the choices that are presented.The conversation should start with an explanationof the generalrisks that the couple willface in retirement. Theserisks include:• Market risk– sequence ofreturns early inretirement.• Longevity risk –living longer thanretirement income.In nine of the 50 states, governmentworkers with DB plans that do not pay intoSocial Security will receive a very reducedbenefit or none at all.• Inflation risk –costs of goods and services increasingover time while income does not.• Liquidity risk – not having flexibility whenunexpected events occur.• Health risk – funds needed for long-term care.• Legacy risk – not being able to leave a financial legacy.Once conversations have ensured an understanding of thesegeneral risks, as well as the DB pension risk, the couple needsto determine the importance of each of these risks for their retirementincome. The couple needs to also understand the potentialsources of retirement income. The logical place to startis a determination of potential Social Security (one or bothmay have benefits that can be affected by the age at which they82 | The American College | FALL 2011

Relying on just a portfolio incomefor an expected life for at leastone of them of 30 years may betoo risky a strategy.are drawn down and if both spouses do so at the same time).Calculators are available on the Social Security site (ssa.gov) toanalyze alternative age and income choices.In nine of the 50 states, government workers with DB plansthat do not pay into Social Security will receive a very reducedbenefit or none at all (windfall provision). After Social Securitybenefits are analyzed, attention should then be directed to DBpension benefits available to the government worker spouse.Choices will include a lump sum withdrawal, and a variety ofoptions that can include 100 percent joint and survivor benefits,one-half to beneficiary, one-third to beneficiary and asingle life benefit. The problem in deciding which choice toaccept lies in the fact that, unlike corporate DB plans, publicDB pensions are not guaranteed by the Pension BenefitGuaranty Corporation (PBGC), and there is no regulation ofpublic DB pensions by the federal government.If the public plan defaults on its promised benefits there isno guarantee of benefits. The planner must recognize the provisionsfor the state in which the client earns the DB benefitbecause each state has its own regulations. In addition, eachstate has a different degree of default risk as measured by theunfunded ratio of the plan, which changes each year based onthe following:• Employer contributions• Employee contributions• Number of retirees to active members• Salaries• Age of pension plan members• Return on investment portfolio• Discount rate for the assets in the portfolioIf the financial professional believes there is a reasonablechance that the benefits will be reduced or eliminated, thisrisk should be presented to the client and potential solutionssuggested after other sources of income beyond Social Securityare determined.What other sources of retirement income areavailable for the client? Let’s assume that they haveSocial Security benefits that will provide a foundationfor the retirement income and that the DBpublic pension plan will initially provide a fixedincome that is equal to the Social Security benefit.They have both paid into Medicare and are noweligible for these medical benefits. They have a totalportfolio of investments equaling $1.1 million,the basis for withdrawals for future income, whichis invested 50 percent in equities, 40 percent in debt securitiesand 10 percent in cash equivalents. They want to keep theseproportions the same in retirement. Before taking recommendationson how their portfolio should be invested, the couplemust decide on their expenditures in retirement, includingboth fixed monthly expenses and discretionary expenses suchas travel, gifts and charitable donations.The couple still has a mortgage of $100,000 on their secondhome and they own their primary residence free and clear.They have two children and six grandchildren that they wouldlike to leave a legacy, and they would also like to leave a legacyto their colleges.While they mull over their desired retirement lifestyle, youmust come up with a plan that provides retirement incomethat will last as long as they live and still have resources left forthe desired legacy.Relying on just their portfolio income for an expected lifefor at least one of them of 30 years may be too risky a strategyin addition to the chance that the DB pension fund may notpay benefits in the future. There are a number of choices forretirement income beyond the systematic withdrawal strategy,including the following:• Lifetime income annuities• Deferred life annuities• Deferred annuities with lifetime guaranteed benefitprovisions• Long-term care insurance• Life insuranceIssues that should be discussed include whether to save orspend the DB pension payment, when to pay off the mortgageon their second home and how much of a legacy they want toleave. Which products are selected by the financial professionaland approved by the couple will be based on their understandingof the risks confronting their retirement income andtheir willingness to transfer some of the risk to third parties.FALL 2011 | The Wealth Channel Magazine | 83

esearchWomen Need to Think Beyond Todayby Karen Wimbish> Let’s just come out and say it: Many women say they aren’t prepared for retirementKaren WimbishKaren is the Directorof Retail Retirement,a part of WellsFargo Retirement,where she leadsa department ofmore than 200team memberswho are focusedon increasing WellsFargo’s ability tohelp retail customersplan for and livea comfortableretirement.karen.wimbish@wellsfargo.comBecause women are statisticallymore likely to live longer andto leave the job market and reenterit years later, they are lesslikely to have enough saved forretirement. That’s definitely adouble whammy.How do we know this? WellsFargo enlisted Harris InteractiveInc. to conduct a surveyon our behalf, including 1,756telephone interviews of middleclass Americans in their 20s,30s, 40s, 50s and 60s. The interviews,conducted between September9, 2010, and October7, 2010, surveyed attitudes andbehaviors around planning, saving and investing forretirement. To target the middle class, the surveyincluded only respondents who fell within specifiedincome and wealth brackets. Those aged 25 to29 had household income of $25,000 to $99,999or investable assets of $25,000 to $99,999. Thoseaged 30 to 69 had household income of $40,000 to$99,999 or investable assets of $25,000 to $99,999.The lower income limit for 20-somethings was usedto reflect the early stage of their careers. For the 20sage group, only respondents aged 25 to 29 were includedin order to focus on workers.The results from our Wells Fargo RetirementSurvey told us much about the attitudes of womenacross five decades. For example, it showed thatonly 54 percent of all women were confident theywill have enough saved to live the life they desire inretirement. Women were also less likely to have apension plan (40 percent) or 401(k) through an employer(71 percent) as compared with men. Whenit came to Social Security, women were less likelythan men to believe it would beavailable to them.Digging deeper into women’ssavings activity and attitudes,we found that women have settheir sights lower for what theyneed for retirement and—ontop of that—have saved lessthan men. Women set a medianof $200,000 as the amount tosupport them in retirement andhave saved a median of $20,000;men set a median of $400,000for their retirement and havesaved a median of $25,000.According to our survey,nearly 30 percent of middleagedwomen are also unclear about how much theywould need to withdraw from retirement savingsannually. About 32 percent of women in their 40sand 50s estimate they will withdraw 11 percent to30 percent, or more, from their savings each year.Most financial experts would say that 4 to 6 percentshould be the maximum for withdrawing annually.When it comes to making financial decisions, 35percent of women identified themselves as the primaryfinancial decision maker, compared with 55percent of men. In marriage, 83 percent of womensaid they were the joint financial decision maker,while 58 percent of men considered themselves ajoint decision maker. We view this 25 percent pointgap in responses as a communication gap that signalsthe need for couples to truly have those longrangefinancial discussions, no matter how uncomfortablethey may be.Women in our survey were candid about beingwary about putting money in the stock market,possibly reflecting the most recent market turmoil.84 | The American College | FALL 2011

Only 27 percent considered the stockmarket a safe place to invest and growtheir retirement dollars. We asked bothmen and women what they would doif we gave them $5,000 to put awayfor retirement. Forty percent of thewomen would buy bank CDs with themoney instead of putting it in the stock market, comparedwith 30 percent of men who would purchase CDs. Investingtoo much money in CDs for long periods of time may causethem to not keep up with inflation rates.age changes attitudesWith this survey spanning five decades of women, it was fascinatingto see how different attitudes are from one generationto another. Based on our research, women in their 20s tendto be too conservative with investments in stocks. We thinkit is likely that they watched many lose so much in the 2008-2009 market downturn. Instead, this age group may need toconsider being more aggressive in investing because they havetime to absorb some setbacks they might face through theyears. Of course, as each investor’s situation is unique, youneed to review your specific investment objectives, risk toleranceand liquidity needs before a suitable investment strategycan be selected.*Young women should also think about setting aside moneyin an employer-sponsored retirement plan right away—withthat first job—and contribute a consistent percentage. Then,if they get a promotion in their 30s, for example, any increasein salary should correlate to an increase in savings put into the401(k). The key is to get into the discipline of setting asidemoney right away so it won’t be missed.Women in their 40s tend to be the most stressed, financiallyand otherwise. Many are sending children off to college andfacing rising tuition costs, while also contemplating how tocare for aging parents who may be accumulating pricey medicalbills. Despite the pressures, we encourage these women tokeep contributing to their 401(k) plan at the percentage thatmaximizes the company match. The long-term shouldn’t besacrificed for the present day, no matter how tempting it is.According to our research, once women are in their 50s,they become the least concerned of the age groups and almostgiddy with the prospect of retirement. Perhaps they’reoblivious of the financial needs of the retirement to come andretirement is far enough in the distance to not worry them ona daily basis.When the 60s come, however, women go back to feelingstressed. Retirement is now imminent. They face hard choices.We’ve found that many women feelintimidated about what they don’t know.How long will they need to keep working before drawing fromtheir retirement savings? Will they need to continue workingat least part-time after retiring from their full-time job? Willthey be compelled to move to a cheaper part of the country—or world—to stretch their pool of money?These final two groups of women often reflect generationswho have left and then re-entered the workforce. That translatesinto smaller contributions into the employer-sponsoredplan and potentially a lower salary from which to draw contributions.It also might lead to the looser connection to thoselong-range financial discussions with a spouse, reflected in thevaried survey responses from women and men about joint financialdecision making.As we look at our survey results and other research aboutattitudes and actions around retirement savings, we believethere is a real opportunity to take control and adopt a moreproactive stance about their financial future. We want to helpwomen of all generations to find ways to keep them from feelingresigned to a less-than-desirable future.So, how do we begin to get at the solution? We have toeducate ourselves.We’ve found that many women feel intimidated aboutwhat they don’t know and assume financial planning is goingto be too complex to understand. Knowing also that womenlike to learn from other women and prefer social networkingto lectures, we launched our Beyond Today SM website (wellsfargo.com/beyondtoday)earlier this year. The website, gearedspecifically for women, features planning tools and checklists,articles addressing common concerns and blog posts abouttopics including budgeting, examining shopping habits anddeveloping a network of trusted people to tap for advice andhelp.We also have to just start taking steps—saving money nowfor the future that lies beyond our today.* Stocks offer long-term growth potential, but may fluctuate more and provideless current income than other investments. An investment in the stock marketshould be made with an understanding of the risks associated with common stocks,including market fluctuations.Wells Fargo Advisors, LLC, Member SIPC, is a registered broker-dealer and aseparate non-bank affiliate of Wells Fargo & Company.FALL 2011 | The Wealth Channel Magazine | 85

esearchEvolving to Fee-Based Compensationin the Retirement Plan Businessby Ken Cochrane> Learn if a fee-based compensation model makes sense for your clients and your practiceKen CochraneKen is the ManagingDirector of PulseLogic. In addition tohis market research,he also works withcompanies tohelp them growby identifying andimplementing theirbrand strategy, aswell as developingand executingsales plans andmanagementpractices.kcochrane@pulse-logic.comRetirement plan advisors are movingaway from commission to fee-basedcompensation models at a rapid rate.While widely recognized within theadvisor-served marketplace, this pace ofchange is note worthy. Our studies showthat two years ago, 34 percent of plan advisorsreported having service agreementsin place with all of their clients. Thesedocuments not only state the services advisorsprovide, but also outline their fees, the sourceof payment and the timing of the payment. Today,more than 65 percent of advisors report having serviceagreements in place with all of their clients. Wealso found that 35 percent of advisors reported allof their retirement plan business was commissionbased in 2009, while today just 17 percent reportthey are solely reliant on commissions in the retirementplan space.Why this dramatic change? The retirement planfield is a dynamic marketplace with multiple exogenousforces pushing its evolution. Increased regulations,scrutiny and risk awareness have moved plansponsors to demand more from their retirementplan advisor. Plan sponsors are not just looking toadvisors to do more, but also share in their fiduciaryresponsibilities. As a result, Pulse Logic hasfound plan sponsors are looking to their advisor tonot only be more involved, but to be an expert whocan guide or make critical decisions. In addition,they want the advisor’s roles and responsibilities tobe clearly defined, leading to greater accountabilityand the assurance that many of the crucial fiduciaryfunctions will be performed.Retirement plan advisors have responded byproviding service agreements to their clients. These61 percent of advisors admitassigned fees still comedown to client negotiations.contracts not only decouple themselves from productand service providers, but also allow advisors tosell their services on their own merit. Even amidthese transformational changes, we have found planadvisors remain optimistic. More than 80 percentreport they see their retirement plan business growingand becoming a larger source of revenue orpredict it will become their primary business. Theyalso believe the field will require greater advisor expertise.More than 75 percent see a move towardspecialization, resulting in the plan-centric advisorthriving while the incidental plan advisor maystruggle in the future.During this transition to fee-based compensationmodels, the marketplace is beginning to revealinefficiencies. So often the case in changing markets,advisors are testing the market to find the rightservice offerings and fee structures.For the past 30 months, Pulse Logic has been activelystudying the retirement plan advisor marketspace. Having conducted more than 14 studies, wehave amassed data from upwards of 1,300 retirementplan-centric advisors. During this period thedemographics of plan advisors have remained consistent.More than 50 percent of plan advisors haveat least 20 years of experience, and 75 percent haveat least 15 years in the financial services field. Our86 | The American College | FALL 2011

data also indicates that 55 percentof these advisors have atleast 15 plans under management,and 60 percent indicatethey have at least $25 millionof qualified plan assets undermanagement. Year over year,about half sell one to threeplans, while 25 percent sellfrom four to six plans. Twenty-fivepercent indicate this istheir primary business, while70 percent report it is one ofno more than three core businesslines.As the fee-based compensationmodel develops, we’rebeginning to see threads ofconsistency. Similar to commissionmodels, 88 percent of fee-based advisors report theircompensation is a function of plan assets. Half of those advisorsreport using tiered schedules where basis point chargesdecline as assets increase. Flat fees, while rarely used on theirown, are being used to some degree as a hybrid model withasset based fees. As you can see in Chart A, flat fees alone,or as a hybrid model, are most frequently used in the planswhen there are insufficient assets to cover the advisor’s fees orwhen asset-based fees may exceed the commensurate servicesprovided.While the basis of fees show some consistency, the similaritiesbegin to break down when determining fee levels. A recentstudy revealed 49 percent of advisors report they base theirfees on market rates, 22 percent use perceived client thresholds,17 percent use a cost plus method and only 12 percentchart a: retirement Plan advisor fee structures Based on Plan sizeSeventy-six percent of advisorsreport they are either paid directly bythe plan sponsor or their fees are adeduction from plan assets.rely on an outside source. All told, 61 percentadmit assigned fees still come down toclient negotiations.When asked what influencers changetheir fees, the most frequently cited reasonwas the required level of client attention (78percent). This was followed by the complexityof the plan (49 percent). Other significantreasons included the influence of their clienton other potential business (29 percent) andprovider service issues (27 percent).When asked if advisors offset their feeswith commissions or allowances received, nearly half statedthat offsetting fees with commissions did not apply to theirbusiness. Among those still receiving commissions, two-thirdsstated they do not offset fees with commissions received.Often overlooked but an important part of the fee-basedmodel is the source of the funds and who pays the advisor.Seventy-six percent of advisors report they are either paid directlyby the plan sponsor or their fees are a deduction fromplan assets, while the balance report they are paid from theplan’s ERISA account. Advisors report that nearly 40 percentreceive payment from either the investment platform provideror directly from the plan sponsor, depending on each plan’sstructure. Twenty-seven percent of advisors report they arepaid by the investment provider on all of their plans, while anadditional 27 percent report they are paid directly by the plansponsor on all of their plans.FALL 2011 | The Wealth Channel Magazine | 87

esearchQuarterly proves to be the most popular frequencyof payment (70 percent), while nearly the balance (27percent) report they are paid monthly. Sixty-five percentreport being paid in arrears and 35 percent arepaid in advance. Those basing their fees on assets mostfrequently (43 percent) use the value of plan assets atthe end of the period to calculate their fees. 30 percentuse the beginning of the period while 26 percent relyon a third party payor to determine the method of calculatingfees.Contrary to standard practices among consultingfirms, our studies report that 75 percent of advisorsdo not bill their clients for expenses incurred such astravel, printing or shipping.Pulse Logic studies have also shown the fee-basedmodel has proven successful. Plan advisors embracingfee-based models tend to have more qualified planassets under management, as you can see in Chart B.chart B: Qualified Plan assets Under managementchart c: annual assets from new retirement Plan sales: 2008, 2009, 2010Only 22 percent of commission-based advisors report havingqualified plan assets under management exceeding $25 millionvs. 70 percent for fee-based advisors. In fact, 36 percentof fee-based advisors report their new sales in the last threeyears have accounted for at least $10 million of new plan assetsunder management each year. While the fee-based approachlends itself to larger plans, those who have taken the addedsteps to position themselves as a specialist have enjoyed evengreater success. Chart C indicates that 58 percent of advisorswho position themselves as ERISA/fiduciary specialists haveexceeded $10 million of new plan assets under managementin each of the last three years. Among those positioning themselvesas investment experts, 45 percent exceeded $10 millionof new business in the last three consecutive years.While the fee-based model proliferates within the advisorservedretirement plan space, best practices and benchmarksare still in the process of being established. But its success isclearly established. Advisors whose practice is dependent ontheir retirement plan business are best served to establish a feebasedsolution to meet the evolving needs of plan sponsors,and to develop a specific expertise to increase their competitiveposition in the marketplace.88 | The American College | FALL 2011

esearchSupporting Retirement Income Clients:Key Insights for Independent Advisorsby Beth Stelluto> How can independent financial advisors help mass affluent clients prepare for and live in retirement?Beth StellutoBeth is the ExecutiveVice President ofPlatform & ProductDevelopment at LPLFinancial.beth.stelluto@lpl.comProviding support for retired clients is not a new rolefor advisors. Yet the issues that professionals grapplewith in serving retirees are more perplexing today thanever. The growing reliance on personal investments,the seemingly never-ending increases in healthcarecosts and the challenging economic climate all provideadditional risks for advisors supporting clientswho may live 20 years or more in retirement.Despite the challenges, the opportunities in helpingclients transition to retirement are enormous forindependent financial advisors. A recent researchstudy conducted for LPL Financial and New YorkLife/MainStay Investments by Northstar ResearchPartners reveals new insights on how advisors canbetter serve clients shifting to retirement.insight #1 independent financial advisors mustdo more to engage clients in the responsibilities ofpreparing for retirementMass affluent consumers—especiallythose within five years of retirement—lackboth confidence andpreparedness for retirement. Fewerthan one in five pre-retirees are highlyconfident they can live a fulfillinglife in retirement. Similarly, only onein 10 or fewer pre-retirees have agood sense of the income needed orhave confidence they can be financiallysecure in retirement.The lack of confidence reflects inadequatepreparation for retirement.Consumers show little urgency totake action in anticipation of loomingretirement realities. Pre-retireesseem especially disengaged and unresponsiveto the challenges of retirement.insight #2 independent LPL financial advisorsare important catalysts for overcoming consumerinertiaAdvisors have a much higher appreciation and anxietyfor retirement issues. Of most concern to advisorsare clients running out of money, clients not beingable to sustain their lifestyle and clients delayingretirement. The result is a significant gap betweenLPL Financial advisors’ and consumers’ concerns, asshown in Table 1. This gap relates to consumers notunderstanding retirement basics including underestimatinglongevity and overestimating how much incomethey can draw from assets.Consumers working with an advisor are significantlymore likely to feel well prepared for retirement.Thirty-five percent of pre-retirees workingwith an advisor feel well prepared for retirementcompared to the just 23 percent of pre-retirees notworking with an advisor that feel well prepared. Still,table 1: gaps in consumer and LPL financial advisorretirement concernsconcernPreretireesLPLfinancialadvisorsgaprunning out of money 15% 54% 39%not having the lifestyle iwant in retirement16% 47% 31%Having to delay retirement 14% 41% 27%Having to work to generateincome8% 29% 21%Being a financial burden tomy children7% 28% 21%spouse or i being in poorhealth in later years31% 41% 10%Having to live within astrict budget15% 23% 8%FALL 2011 | The Wealth Channel Magazine | 89

advisors need to do more, as nearly twoin three pre-retirees they serve do not feelwell prepared.The feeling of greater preparednessis caused by decisive action. Consumerswho use an advisor are more likelyto take steps to assure well-being in retirement,as outlined in Table 2. Thisincludes basics such as increasing savingsor establishing an emergency fund.It also includes informed actions such asdetermining sources of income or shiftingportfolio asset allocations.Retirees working with financial professionalsidentify the areas of supportthat define advisor helpfulness. Whileinvestment management is an important element, it is not themost critical activity. Most important to defining advisor helpfulnessfor retirees are education and planning, developing asustainable income strategy and creating a financial plan.insight #3 Retirement Clients Pose Unique Challenges andOpportunities for AdvisorsThe unique challenges for advisors in working with retireesunderscore the different needs of aging boomers as opposedto younger investors still accumulating wealth. Key areas inworking with retirees include:• Income approach – identifying strategies to generatesustainable income.• Risk management – mitigating the risks more readilyassociated with retirement.• Client support – spending sufficient time managingthe diverse needs of retirees.• Oversight – engaging in ongoing monitoring andreview of portfolios and circumstances.• Breadth of support – broadening the scope of servicesoffered.Many advisors find great reward in serving retirement incomeclients. These benefits arise from the deeper bond thatforms with retirees. It also evolves from the planning-orientedapproach that advisors often use with these clients. Advantagesfor advisors in serving retirement clients include:• Consolidation – 86 percent indicate retirees are morelikely to consolidate assets leading to a higher share ofassets managed• Deeper Relationships – 80 percent indicate retirees aremore likely to value the advice and services provided• Retention – 76 percent indicate they are more likely toretain retiree clients and assetsOnly 51 percent of pre-retirees surveyed have an existingrelationship with an advisor. This offers a huge opportunity90 | The American College | FALL 2011Table 2: Key Actions Taken to Prepare for RetirementConsumer ActionUseAdvisorDon’tUseAdvisorGapSaved as much as they could forretirement95% 73% 22%Figured out income from all sources 92% 67% 25%Set up an emergency fund 89% 55% 34%Developed a vision of life in retirement 87% 51% 36%Moved assets to more conservative orincome generating products85% 50% 35%Paid off my mortgage 57% 42% 15%Having to live within a strict budget 15% 23% 8%for independent advisors. Pre-retirees not working with advisorscurrently but open to doing so in the future are far morelikely to value working with an independent professional thanany other type of advisor.developing a successfulretirement income practiceIndependent advisors, including LPL Financial advisors, arewell positioned to take advantage of the emerging demand forretirement income support. The research suggests several stepsthat advisors should take to build a successful retirement incomepractice:• Develop your retirement income approach, bridgingprocess and implementation.• Establish your value proposition, differentiating youroffering.• Be mindful of heightened retiree concerns, focusing onongoing education and communication.• Use planning as a basis for relationships, helping tocreate a framework that sets clear expectations.• Build skills to support client emotional needs,recognizing the difficulties many individuals facetransitioning to retirement.• Use income/cash flow as a key metric, reflecting thedifferent outcomes desired by retirees.• Address broader needs such as insurance andhealthcare, creating a deeper basis for relationships.A full version of these research results can be downloadedin white-paper form.Methodology: LPL Financial and New York Life/MainStay Investments engagedNorthstar Research Partners to conduct research that identifies opportunities forindependent financial advisors supporting mass affluent consumers preparing forretirement. An online survey was conducted in April and May 2011. The researchsurveyed 2,001 U.S. consumers aged 50 or older with at least $150,000 ininvestable assets including 1,250 recent retirees (retired for less than 7 years) and751 pre-retirees (within 5 years of retirement). Also surveyed were 918 financialadvisors comprised of 629 LPL Financial advisors and 289 other advisors.LPL Financial, A Registered Investment Advisor – Member FINRA/SIPC

Section Contents: Getting Ready for Google Plus 93 Doing More with Less – Using cheap technology to increase productivity 95technologyHave You Been to TheWealth Channel Online?> View the new site, providing daily video content updates for insurance and financial professionalsIn addition to The Wealth Channel Magazine, contentfrom the Wealth Channel is also available online(TheWealthChannel.com), and as a mobileapp. With a growing archive of hundreds of writtenarticles and video segments, The Wealth Channelprovides financial and insurance professionals withtimely access to relevant content—wherever andwhenever they need it.In January of 2009, The American Collegelaunched the initial version of TheWealthChannel.com, with the goal to become a leading sourceof news and informationto financial professionals.Leveraging the expertise ofThe College’s faculty andalumni, as well as otherexperienced financial andinsurance professionals,The Wealth Channel onlinehas built a depth of videocontent that covers importantindustry topics.A newly designed WealthChannel site was launched inAugust of this year to provideusers with the following improvementsand benefits:• More intuitive accessto recent, relatedand relevant content,through improved Searchcapabilities and dynamiccontextual contentfeatures.• Better integration with the depth ofcontent available from The Wealth ChannelMagazine, The American College andimportant industry partners.• Better ability to share and syndicate contentthrough RSS feeds, social media andembedded video options.FALL 2011 | The Wealth Channel Magazine | 91

technologyupdated dailyVideo content on The Wealth Channel is updated daily and isorganized across several major topic areas including:RetirementThe content in this section is designedto provide critical knowledgeto professionals serving clientsthat need assistance in building a retirement plan thatprovides income for life. This section now also includes contentprovided by The New York Life Center for RetirementIncome, which brings a wide variety of industry experts and adepth of retirement-related video content.EthicsThe Wealth Channel has a depth of video content related toethics in financial services. This section is devoted to talkingabout ethical issues and helping financial practitioners conductthemselves in a manner that does credit to their professionand their community.Wealth TodayUpdated daily Monday throughFriday, Wealth Today provides adaily overview of pertinent industrytopics, combined with practical sales and managementadvice from the industry’s top professionals. The new WealthChannel site augments daily Wealth Today content by highlightingrelated video, written and other web content that providesfurther perspective on key issues.Other key topics• Estate Planning• Wealth Accumulation• Insurance, Practice Management• Philanthropyupdated monthlyThe Wealth Channel also provides monthly featured content,including recent in-depth video interviews with 2011 KnowledgeSummit speakers Joe Jordan, Gen. Vincent Boles andSen. Alan Simpson.With more than 1,000 pieces of content available, the newWealth Channel site has upgraded its search functionality tobe more powerful and precise. Content can now be searchedby topic, date, speaker and a variety of keywords, and TheWealth Channel will recommend additional articles and videosbased on specific user preferences.get the appThe Wealth Channel site provides a link to online,interactive versions of current and back issuesof The Wealth Channel Magazine, and a linkto download The Wealth Channel app (availablefor iPhone and iPad now and the Android in the third quarter).The new site also offers a variety of ways to share contentwith colleagues, including RSS feeds, social media links andthe ability to flexibly private-label and re-distribute content.The Wealth Channel will continue to expand its content,features and functionality to ensure that it remains a leaderin financial services and insurance news and information inprint, online and via mobile. Over the next several monthsthe site will expand its content focus to consumers of financialand insurance products in addition to financial professionals.Future search functionality will provide full video transcriptsearch, identifying where specific topics are discussed within alarger presentation, and the site will personalize content basedon specific site usage.Visit The Wealth Channel online at thewealthchannel.com. Follow The Wealth Channel on Facebook at facebook.com/pages/The-Wealth-Channel/138217586206491, or onTwitter at twitter.com/wealthchannel.92 | The American College | FALL 2011

technologyGetting Ready for Google Plusby Matt Henry> Google Plus enters the social media market—discover the implications to insurance professionalsMatt HenrySince 1995, Matt hashelped clients, fromstart-ups to Fortune500 companies, tosell and effectivelyservice their clients.matt.henry@TheAmericanCollege.eduThe social media landscapehas emerged quickly over thepast 5 years, with dominantbrands like Facebook, Twitterand LinkedIn each countinghundreds of millions of users intheir ranks. The massive reachof these forms of media hasmade social media an importantcomponent of consumercommunications for financialservices corporations, as well astheir employees and affiliates.Compliance and regulatoryissues continue to limit the levelof interaction possible throughsocial media. However, most financial servicesfirms have defined policies and parameters throughwhich their agents and brokers can use social mediato communicate to prospects and clients. Today,this communication is predominantly drivenby brand awareness activities and referrals to topicalarticles and video content. Social media also allowsfinancial and insurance firms to advertise to individualusers in a very targeted way, and it providesa mechanism for firms to listen to client issues andconcerns.Just as social media was becoming better understood,and better utilized from a business perspective,a (significant) new entrant has emerged.As Google Plus continues toimplement business-specificfunctionality, there will likely beadded levels of security, contentmanagement and documentsharingfeatures that businessescan take advantage of.In July, Google announced its Google Plus service,a new form of social media that combines elementsof Facebook, Twitter and others with a fewnew features that only Google could provide.Recently released to the public, usage of GooglePlus will continue to expand as bugs are worked outand new functionality is introduced. Google has explicitlysuggested that the initial release of GooglePlus is geared toward individual use; however, theyexpect to add features to support business use as theBeta phase continues.Google Plus provides two major advantages overits social media competitors to potential businessusers.FALL 2011 | The Wealth Channel Magazine | 93

technology1. Circles – A key component of the Google Plusinterface is the concept of circles. Essentially, anindividual user can create customized groups ofcontacts, and then easily define what communicationgoes to what group. A typical user might have“Friends,” “Family” and “Co-workers” groups, butcircles can be as specific and numerous as necessary(e.g. “Golf Friends,” “In-Laws” and “My Bosses”).In a business context, a company or agency could also createcircles such as “Hot Prospects,” “Long-term Prospects,”“Active Customers” or “Internal Use.” This would allow certaintypes of content to be visible only to members of certaingroups. Communications can then be easily segmented andtargeted, making the messaging more efficient, eliminatingperceived noise and potentially mitigating compliance issues.As Google Plus continues to implement business-specificfunctionality, there will likely be added levels of security, contentmanagement and document-sharing features that businessescan take advantage of.2. It’s Google – One of the primary benefits that sites likeFacebook and LinkedIn provide is the ability to targetadvertising to specific users based on their activity onthose sites. Facebook, for example, may display an adfor a local insurance agency, because it knows where aspecific user lives, his gender, his age and the fact thathe likes motorcycles.Google, on the other hand, has a significantly deeperamount of information through which to target ads. The samelocal insurance agency will now be able to target ads based ondemographic and psychographic data, in addition to informationavailable through Gmail and YouTube accounts. This allowsa much higher degree of advertising targeting, indicatingusers that are actively looking for insurance, just got married,just had a child, etc.While Google has had its share of failed ventures (GoogleOrkut for example), Google Plus is entering the market with alot of publicity and momentum. There is every indication thatit will become a significant player in the social media marketplace.Google Plus may, in fact, surpass even the astronomicalsuccess of current market leaders due to its depth of resources(financial and informational) and a more flexible set of features.As such, it is important to financial and insurance professionalsto understand the marketing, advertising and internalcommunications capabilities that Google Plus can provide.To learn more about Google Plus, visit google.com/+/learnmore/.94 | The American College | FALL 2011

practice managementDoing More with LessUsing cheap technology to increase productivityby Adam C. Pozek, RHU ® , REBC ®> Be in the know on the latest apps to make your business life easierAdam C. Pozek,RHU ® , REBC ®Adam is a Partnerwith DWC ERISAConsultants, LLC inNew England. Heis a frequent authorand lecturer andpublishes a blog atPozekOnPension.com.adam.pozek@dwcconsultants.comOn a recent flight from Boston to Minneapolis,I got a laugh when I noticed that six of the eightpeople seated in the first two rows of business classhad their iPads out as soon as the “It is safe to useportable electronic devices” announcement came.The blazing speed at which technology moves everonward is nothing new; however, the fact that gadgetsand downloads are now useful in business issomewhat of a novelty, especially in the financialservices world. Fortunately, we no longer have tobreak the bank to take advantage of the myriadtools that are developed every day.Dropbox (dropbox.com) is one of a numberof web-based (a.k.a. cloud) storage, sharing andbackup services. When you create a free accountand download the free application, Dropbox createsa folder on your computer. Anything you saveor copy to that folder is automatically synced toyour online Dropbox folder, and it is all donesecurely so that your data is protected. InstallDropbox on your laptop, and you’re automaticallysynchronized. Install thefree app for your iPad, iPhone,Blackberry or Android, and allyour files are instantly accessible.If you make a change onany one of those devices, theupdated version is immediatelybe synced to all the others.Dropbox also provides a securemethod of sharing fileswith others. If you need to sharea single file, just right-click thefile name and the pop-up menuallows you to create a securelink you can e-mail to anyone. You can also shareentire folders with anyone else who has a Dropboxaccount. Set up an account for your entire officeand allow your team members to safely and securelyshare files with each other and collaborate on theTechnology moves ever onward,but for less than the annual costof that daily cup of coffee thereare tools that allow you to makethe most of your time.go. Accounts are free up to 2 GB of data and goup to $19.99 per month for up to 100 GB of data.No matter how organized you are, it is too easyto accumulate notes from your many meetings andconferences on multiple notebooks. Then, thereis the challenge of trying to decipher your ownFALL 2011 | The Wealth Channel Magazine | 95

personal shorthand when you get back tothe office. The Audiotorium app for iPad(http://itunes.apple.com/us/app/audiotorium-notes-text-audio/id362787978?mt=8)takes care of these issues for only $4.99. Justlaunch the application, and you are greetedby an interface that looks like a yellow legalpad. It allows you to type meeting notesand record the audio at the same time fromwithin the same app. Concerned that youwill now have to organize notes and recordings?No problem. Audiotorium allows youto tag all your entries with keywords thatcould include client name, location, date,etc.If you have a Dropbox account, Audiotoriumwill instantly save your notes andrecordings to the cloud. You can e-mail alink to other meeting attendees before youeven leave the parking lot, or automaticallysync the files with your assistant’s computer,so he/she can review and draft a follow-upe-mail with action items for your review beforeyou even get back to the office.Prefer handwriting to typing? Well, thenext update to the app promises to allowyou to write notes directly on screen usingyour finger or a stylus.GoodReader (goodreader.net/goodreader.html)allows you to read and mark upPDF files directly from your iPad. It also allowsyou to open and read many other commonfiles such as those from Word, Power-Point and Excel. As the app integrates withDropbox and other cloud storage services,you can access your files anywhere you canget an Internet connection, and all of yourchanges are automatically synced to yourother devices. If you need to work offline,simply download your files in advance andthe synchronization will occur the next timeyou are connected. When you have finishedyour review and mark up, you can e-mailfiles directly from within the app to anyonewith an e-mail address. GoodReader is only$4.99.Yes, technology moves ever onward, butfor less than the annual cost of that dailycup of coffee there are tools that allow youto make the most of your time so you cando more of what you enjoy—serving yourclients.Award-WinningOnline CourseThe Blackboard Catalyst Award winners truly representthe best in innovative thinking and best practicesin education. Their work sets a great examplefor the millions of educators and students usingteaching and learning solutions every day as part oftheir global community of practice. We’re pleasedto recognize their contributions and celebrate theiraccomplishments.~Ray Henderson, President, Blackboard LearnThe American College ispleased to announce thatWalt Woerheide, PhD,ChFC ® , CFP ® (upper left) andthe Instructional Design Departmentheaded by RyanEmery, MSM (lower right),Robert McCunney (upperright) and Aileen Lynch (lowerleft) have been awardeda 2011 Blackboard CatalystAward for Exemplary CourseDesign for HS 328 Investments.The Blackboard ExemplaryCourse program began in 2000 with the goal of establishingand sharing best practices for delivering online education.The program gives professors and designers the opportunityto judge their courses against proven educational practices.Participants perform a self-evaluation of their own course, aswell as receive detailed feedback from colleagues in the onlineeducation community.Our Investments course was assessed on three main areas:course design, interaction and collaboration, and assessment.In addition to being recognized for educational effectivenessin these three rubric components, our Investmentscourse received accolades for the active and engaging studymaterials we provide. Dr. Woerheide’s video lectures onlearning objectives have become an integral part of helpingour students achieve success in this course. Also applaudedwas our extensive learner support system, where we help studentsanswer any questions they have about content or technology.We have a variety of support options, such as comprehensiveFAQ’s in our student assistance website, supportemail inboxes that are monitored on a consistent basis, a livechat feature and faculty support in the discussion forums.“The Blackboard Catalyst Award is a huge honor that is bothappreciated and gratifying!” said Dr. Woerheide. “The AmericanCollege is proud that an industry-leading organizationsuch as Blackboard has confirmed our commitment and approachto providing the most up-to-date educational methodsin the nation. Our focus on our students … led to TheCollege adopting Blackboard as our e-learning platform, andit drives us to strive for excellence in employing it.”96 | The American College | FALL 2011

Section Contents: Mastering the Science of Financial Services 98 TAC Knows Retirement Planning! 99educationThe Ethics of Dealingwith Older Clientsby James A. Mitchell, CLU ® , ChFC ®> Learn what The College’s Code of Ethics means in regard to meeting the needs of senior clientsJames A. Mitchell,CLU ® , ChFC ®James is the retiredChairman and CEOof the IDS LifeInsurance Company,a subsidiary ofAmerican Express,and chair of theAdvisory Board forthe Center for Ethicsin Financial Servicesat The AmericanCollege.jmitch0809@yahoo.comThe American College offers the designationof Chartered Advisor for SeniorLiving (CASL ® ). The CASL ® curriculumis the most robust course of studyavailable in this specialized field. Inaddition to dealing with the technicalaspects of retirement decisions, estateplanning, health and long-term careinsurance and investments, one coursein the CASL ® curriculum deals specificallywith understanding the olderclient. This course, HS350, appropriatelynamed “Understanding the OlderClient,” focuses on the important changes clientsface as they age to enable financial advisors to betterserve clients’ needs. It deals with the biologicaland psychological aspects of aging, as well aswith family relationships and other social supportsystems. Additionally, the course teaches advisorshow to communicate effectively with seniors.All who earn The American College’s designationsare required to adhere to the school’s Codeof Ethics, including its Professional Pledge: “Inall my professional relationships, I pledge myselfto the following rule of ethical conduct: I shall, inlight of all conditions surrounding those I serve,which I shall make every conscientious effortto ascertain and understand, render that servicewhich, in the same circumstances, I would applyto myself.”Conducting yourself in accordance with theProfessional Pledge is important in dealing withall your clients, especially so in dealing with seniorclients.You may be recommendingexactly the right thing forthem, but if they do notunderstand, they may resistyour recommendations.You want all your clients to understand whythey are buying what they are buying. That way,they will feel good about the advice you have renderedthem, they will keep their products in forceand they will recommend you to others. With seniors,this is even more important. Some seniorclients suffer from diminished mental capacity ora shortened attention span. You may be recommendingexactly the right thing for them, butif they do not understand, they may resist yourrecommendations or feel bad about a purchaseafterward. If you have concerns about your seniorclient fully understanding, one ethical thing to dois involve a son or daughter or other person thesenior client trusts. In fact, both you and the clientwould be well served to ascertain early in theprocess if there is such a person in the senior’s lifeand involve them from the start.You will want to be careful about recommendingproducts to seniors that carry heavy surrendercharges or are otherwise illiquid. Many seniorscontinued on page 100FALL 2011 | The Wealth Channel Magazine | 97

educationMastering the Scienceof Financial Servicesby Glenn Boseman, DBA, CLU ® , CLF ®Glenn Boseman,DBA, CLU ® , CLF ®Glen serves at theDean of the IrwinGraduate School andRoger Hull-JamesS. Bingay Chair ofLeadership at TheAmerican College.glenn.boseman@TheAmericanCollege.eduThe American College’s Master of Science in FinancialServices (MSFS) degree provides the in-depthknowledge and skills that allow a financial servicesprofessional to serve the public more effectively.The curriculum emphasizes analysis, planning andimplementation of strategies for individuals, familiesand businesses to protect, conserve and distributefinancial assets. The program further emphasizesthe role of the financial services professional indeveloping a synthesis of financial resources, needs,objectives and appropriate alternative plans forachieving the economic ends desired by today’s clients.Graduates and students active in the programenhance their professionalism while gaining skilland confidence in implementing complex strategiesresulting in increased value to their clients.“The impact of my Masters degree is immeasurable,”said current MSFS student Leasha West.“The MSFS has allowed me to gain entry to advancedmarkets, acquire corporate clients and obtainmuch larger cases. The applied knowledgefrom this program has catapulted my bottom line.”The MSFS degree requires a total of 36 creditsor 12 courses to complete the program, and thestudent has five years to complete the program requirementsfrom the time of admission. Eight ofthe 12 courses are required of everyone, followedby two elective courses for individuals who wishto specialize in a specific area. Finally, students willtake two courses in a required on-campus, four-dayresidency program. As part of the MSFS, each studentis required to complete a Case Study Projecttowards the end of the program to demonstrate anunderstanding of and the ability to apply the majorconcepts learned throughout the MSFS. Individualswho have earned the ChFC ® or the CFP ® designationmay request permission to challenge or testout of any two of the required or elective courses.Eligible student must request the challenge within90 days of being admitted into the program.The College began teaching many of the MSFScourses live online in 2010. Each course is taughtfor two hours (usually in the evenings) for a periodof 10 weeks, and concludes with the traditionalmultiple-choice test administered by Pearson Vueor, in some cases, the professor will test using eithera short-answer essay exam or project. Student enrollmentin each of these courses is limited to allowprofessors to have significant interaction with thestudents and to facilitate student interact on a peerbasis. Student feedback on the online courses hasbeen outstanding.The College offers the online webinar coursesin open enrollment, meaning anyone in the MSFSprogram may enroll in the webinar, except whenwebinars are presented for a specific company withonly individuals from that company participating.In November 2011 we will publish the onlineteaching schedule for all MSFS courses for 2012.The schedule will be developed in such a way thata student may schedule the complete programthrough online classes, excepting, of course, theresidency courses.The MSFS program is demanding and challenging,as it presents financial concepts, skills and educationat the highest level in the financial servicesindustry, but the benefits derived from the MSFSfar outweigh the time and expense associated withobtaining it.Jim Peterson, a recent MSFS graduate, said, “BecauseI train and coach a lot of advisors, the MSFShas allowed me to grow professionally and providethe kind of information that my advisors need, particularlythe ones who have been around for a longtime and are looking for different ways to approachthe business.”Visit The College’s website at TheAmericanCollege.eduand see how easy it is to get started in theprogram.98 | The American College | FALL 2011

educationTAC Knows Retirement Planning!by Allen McLellan, CLU ® , ChFC ® , CASL ® , CFP ® , LUTCFAllen McLellan,CLU ® , ChFC ® ,CASL ® , CFP ® , LUTCFAllen is the AssociateDean and AssistantProfessor ofInsurance at TheAmerican College.allen.mclellan@TheAmericanCollege.eduUnderstating it, we live in extremely uncertaintimes! That uncertainty is transparently manifestedin planning for retirement. Your clients are, or willbe, concerned about it—and they will approach youfor advice. How do we account for a long retirement,perhaps 30 years or more, in making assumptionsabout investment markets, inflation and stabilityof income? How do we address the most pressingconcerns of retirees, such as outliving their income,healthcare, long-term care and lifestyle? The stakesare high, and there is no redo on the client’s retiredyears—get it right or face a devastating financial future.Complex issues demand in-depth knowledgeand sharpened skills for anyone holding out to be afinancial advisor, and The American College meetstoday’s challenge of preparing financial advisors toexcel in the retirement planning arena.The competencies required in a retirement plannerare broad and deep. Just a partial list includes:• Investment planning (accumulation forretirement).• Decumulation (lifetime withdrawals fromretirement assets).• Social Security (when to take it).• Healthcare (especially Medicare for seniors).• Long-term care (the biggest threat to securityfor most retirees).This list does not include the soft skills so importantto advisors such as communication, active listeningand interviewing techniques. Clearly, there ismuch to learn for the retirement planner, and thereare no shortcuts to learning the material and masteringthe skills. Enter The American College.For decades, The American College has been theleader in financial services education. We are particularlystrong in our retirement planning curricula,as evidenced by Matthew Wade, LUTCF, a financialservices representative in Ocala, Fla., who said,“That module, specifically, crystallized my decisionto pursue the retiree market as my primary market.As a result, I am now on pace for Presidents’ Conferencein my second full year in the business.”The American College has developed contentfrom some of the nation’s best thought leaders whohave experience as financial planners, served on thefaculty, published their work in scholarly journalsand have been interviewed by our staff. The Collegealso listens to our students and incorporates theirfeedback into frequent revisions of our courses. Thefollowing are five of our most popular courses inour Financial Advisor series and are tremendouslyvaluable to advisors who focus on the retirementpopulation.• FA 261-Foundations of RetirementPlanning. The course addresses all stepsin the retirement planning process, factfinding,analysis and financial assumptions,Social Security, Medicare, Medicaid, taxpolicies and suitability of investment vehiclessuch as stocks, bonds, mutual funds andannuities. Alicia Coleman, CPA, a financialadvisor with Metlife Financial Group of theSouthwest, said, “FA261 was a very helpfulcourse for me. My best clients have been preretirees.I feel very comfortable talking withthem because of the knowledge gained inthe course. I really liked the format and thecontent was great.”• FA 262-Foundations of Financial Planning:An Overview. Delves deeply into thecomponents of a comprehensive financialplan, including retirement planning, riskmanagement, income tax planning andestate planning.• FA 263-Foundations of Financial Planning:The Process. Guides the advisor throughidentifying markets and prospects,communication skills with clients,developing and presenting a comprehensivefinancial plan, and providing superiorservice. Includes in-depth coverage of timevalue-ofmoney, financial risk tolerance andasset allocations.FALL 2011 | The Wealth Channel Magazine | 99

education• FA 255-Essentials of Long-Term Care Insurance. Long-term care insuranceis all about asset protection, usually throughout the retirement period. Thiscourse explains the need, describes coverage provided by long-term careinsurance and describes how to tailor an LTC insurance policy to a client’sneeds. A focused education in long-term care issues.• FA 256-Essentials of Annuities. Studies show that more retirees fearoutliving their assets than fear death. Financial scholars are increasinglyrecommending annuities as a means of providing guaranteed lifetimeincome for clients. This course presents the characteristics of fixed, indexedand variable deferred annuities for accumulation of wealth on a tax-favoredbasis, and it discusses immediate annuities to provide income security forretirees.The true success of The American College retirement planning courses is measuredin the success of the individuals who have taken them, such as Colin Eddington,LUTCF, a financial advisor in Houston. He said, “The knowledge I gainedhelped me grow my practice by many multiples and taught me details about retirementplanning that I did not get from any of my college classes. I recommend itto anyone who is serious about their career as an agent, and who wants to have afoundation to build a successful practice.”Jason King, LUTCF, agency sales director for Creative Financial Solutions,agreed, saying the program’s “focus on both the process of fact finding and on theactivities that are essential in this business contributed greatly to my early success.In my current role as sales director for our New Orleans office, I see our newestadvisors benefiting from the LUTC program, as the assignments and course materialsalign with and complement our agency’s training and development programs.”Upon completing American College retirement planning courses such as FA261,professionals also take with them practical tools they can use in the course of theireveryday business. “Using a questionnaire form from the course, I was able to finallyland a nice size annuity, which I had been trying to get for a year,” said MarcoGiglio, a financial services representative with Tampa Bay Financial.“The questionnaire further uncovered two other needs I had not been pursuingwith the same client,” he added. “While we are still working to get the other twopieces in place, I did find it to be a helpful tool and one I will continue to utilizegoing forward.”In closing, the retirement planning courses mentioned here and other courses offeredby The American College can lead to the Life Underwriter Training CouncilFellow (LUTCF) and Financial Services Specialist (FSS) designations—both worthygoals. In addition, the knowledge, skills and confidence derived from successfulcompletion of these courses will change and lift your professional careers in manyways. More satisfied clients, more referrals, more income and more recognitionfrom your peers will surely result. Armed with the knowledge from these courses,you can easily write your value proposition and explain why clients should call onyou rather than the other guy.“It is not an understatement to say that the LUTC curriculum should be requiredlearning for any advisor coming into this business,” said King.For more information, check out our website at TheAmericanCollege.edu orcall our Professional Education counselors at (888) 263-7265. Good luck in yourcareer!100 | The American College | FALL 2011continued from page 97The Ethics of Dealing withOlder Clientslike the peace of mind of knowingthat they can have ready access totheir money. When a product doescarry surrender charges, you will wantto explain them carefully so the clientand his family understand fully. Someyears ago I was doing an annuity seminarwhere I took care to describe theproduct’s seven-year surrender charge.Afterward one man came up to meand said, “The 7 percent surrendercharge is to give me incentive to leavemy money with you for at least sevenyears, is that right?” When I told himthat his understanding was correct, hewrote us a check for $250,000 on thespot.One of the great benefits that financialadvisors can give all their clients isconfidence in knowing that they havea sound financial plan that helps themachieve their objectives, and that theyare implementing the plan with appropriateproducts. With senior clients,the benefit of that peace of mindcan be even greater. Knowing thathis or her financial affairs are in goodorder can be the greatest gift you cangive to a senior client. Making “everyconscientious effort” to understandthe needs of your senior clients and to“render that service” that is appropriatefor them in their circumstances,being sure they understand fully whythey are taking the actions they are, iswell worth your while. You will be doingthe right things, and your seniorclients will appreciate the effort andrecommend you to others.The American College Center forEthics also has a Continuing Educationcourse, CE 110, “Ethical Issuesin Dealing with Elderly Clients.”This enlightening course, presentedby Julie Ragatz, Director of the Centerfor Ethics, is webcast periodically.To learn more, including whetherthe course is approved for CE creditin your state, please go to the center’swebsite at TheAmericanCollege.edu/center-for-ethics.

Section Contents: Innovative New Program for Paraplanners 104the collegeCenters of Activitystate farm center for womenand financial servicesIn 2011, State Farm ® made a generous donation toThe American College, enabling the creation of anew State Farm ® Center for Women and FinancialServices. The Center’s vision is to be the nation’sleading authority on the economic issues and opportunitiesof American women, both as providers andconsumers of financial products and services.Through leading-edge research, financial educationand awareness building, the Center’s missionis to promote the advancement of women inthe financial services industry and advocate for theeconomic security of American women. In the fewshort months since the Center was established, themission has been put into action with the followingactivities:• Building the Center’s team at The AmericanCollege, including Director Mary Quist-Newins, CFP ® , CLU ® , ChFC ® ; AssistantDirector Briana Vnenchak; MSM and CenterAssistant Christella Louis.• Establishing an advisory board consisting ofthought leaders from the industry, academiaand media.• Co-sponsoring the inaugural “Women ofThe American College: Leadership throughLearning” recognition breakfast with theAlumni Association of The American Collegeat the Knowledge Summit in Las Vegas.The purpose of the event was to celebrate theacademic achievements of women in financialservices.• Fielding the first statistically valid andactionable consumer research study withanalysis and results to be published later thisyear.• Promoting awareness of women’sissues within the industry, includingspeaking engagements for StateFarm ® , Women in Insurance andFinancial Services, the Conferencefor African American FinancialProfessionals, Women in InsuranceLeadership and articles in The WealthChannel Magazine, Financial PlanningMagazine and GAMA InternationalJournal.• Launching the Center’s content-richwebsite. The site can be accessedthrough The American College portalor at this URL: http://womenscenter.TheAmericanCollege.edu/.• Planning the 2012 Women’sLeadership Academy Summit, whichwill take place on Thursday, February23 and Friday, February 24, 2012at the Hilton DFW Lakes ExecutiveConference Center in Grapevine,Texas. The Summit will featuredynamic speakers, academicallyrigorous content, communitybuilding, workshop sessions and apanel discussion on leadership bestpractices. Attendees also will havethe opportunity to earn three creditstoward their Chartered LeadershipFellow (CLF ® ) designation.Registration for the Summit will beopening in September 2011.FALL 2011 | The Wealth Channel Magazine | 101

The Collegethe center for ethicsAs the only ethics center within an academicinstitution focusing exclusively on the financialservices industry, The American College Centerfor Ethics in Financial Services promotes ethicalbehavior by offering programs that go beyondthe rules of market conduct to help executivesand producers be more sensitive to ethical issuesand think more critically about ethical solutions.The Center’s interactive continuing educationcourses, forums and workshops will help practitionersthink critically and behave ethically, evenin the absence of clear direction.Annual events include:• Founding Industry Fellow Retreat andthe Corporate-Level “Members Only”Retreat, which allow members to engagein high-level creative thinking on currentethical topics.• The Forum on Ethical Leadership inFinancial Services is an annual eventthat brings together practitioners fromfinancial services companies and businessethicists from academia to engage inmeaningful conversation about ethics inthe industry.• The Cary Maguire Fellowship supportsan individual who is doing work onthe interaction of theory and practicegenerally related to effective, meaningfuldisclosure with special emphasis in thearea of accounting.• Ethics Awareness Month, originated byThe American College and supported byhundreds of companies across the U.S.,will take place in March and provides theCenter further opportunity to support thecommunity through various methods ofoutreach and education.The Center also will serve as a resource forcutting-edge research and discussion of emergingethical issues in the financial services industry.Because of its unbiased academic role, the Centercan be objective in helping executives, producersand regulators deal with ethical implications ofpublic policy positions.new york life center for retirement incomeOne of the Center’s main activities is the free video library featuring leadingexperts discussing everything from retirement security fundamentalsto sophisticated strategies available at TheAmericanCollege.edu/retirement-income-center.Recently we’ve added new one-hour seminars greatfor in-office training, including saving for retirement, reverse mortgages,annuities in retirement planning, and retirement income strategies.TheAmericanCollege.edu/retirement-income-center/favoritesThe Center continues to add important new topics with key expertsto our website. Recently we have expanded the Social Security claimingmaterial, fully covering a range of strategies for maximizing SocialSecurity benefits, choosing when to begin Social Security benefits, andhow to address the future of Social Security when working with clients.TheAmericanCollege.edu/retirement-income-center/videos/2The Center’s mission also includes encouraging the credentialing moreadvisors so that they can serve their clients with insightful, professional,and cutting-edge advice about the retirement issues they will encounter.An important development in this regard is the new designation beingdeveloped by The College, tentatively called the Chartered RetirementConsultant (ChRC). The new designation will include three courses,HS 326: Planning for Retirement Needs, which is currently available,and two new courses:• HS 353: Advanced Retirement Planning I which will focusprimarily on the preretirement phase of planning. It will helpan advisor help a client create a savings plan, select appropriatesavings vehicles and investment strategies for accumulatingretirement funds, and prepare for long-term care needs. Thecourse also begins the transition into retirement income planningaddressing how to create a retirement income plan, choosingan optimal retirement age, and deciding when to claim SocialSecurity benefits.• HS 354 Advanced Retirement Planning II will focus onretirement income security including: choosing an appropriateretirement income strategy, creating stable sources of incomefrom insurance and capital market products, other methodsfor creating income or limiting spending, and managing theretirement income portfolio.The new courses, which are currently under development, will be selfstudycourses with materials offered entirely online. Students will watchvideos featuring world famous retirement experts, read the latest retirementresearch, follow faculty presentations, and perform student exercises.The practical nature of the materials makes the ChRC ® an importantadditional skill set both for experienced advisors that have a ChFC ® financialplanning or CLU ® insurance designation as well as those advisorswho focus primarily in the retirement planning marketplace.102 | The American College | FALL 2011

Survey says...Thanks to everyone who completed The Wealth ChannelMagazine survey following the Spring 2011 issue. Your responseshelp ensure that we are staying relevant to yourneeds, and we are taking our continued quest to be thepreeminent publication for the financial services industryseriously.Here’s some of what you told us:OverallSurvey responders overwhelmingly agreed that the peerto-peerarticles by industry practitioners (79 percent) andThe American College faculty articles (71 percent) are themost appreciated offerings. Ninety-one percent of yourated the magazine Good or Excellent. Many of you aretraditionalists, with 79 percent of you preferring the printversion of the magazine, but 4 percent of survey respondershave taken the mobile device plunge and read it viayour iPad, iPhone or Android. And we’re happy to reportthat 90 percent of you would recommend WCM to others.We think that tells us we’re on the right track, but we won’tbe resting on our laurels.AdvertisingWe asked you how you felt about WCM including relatedadvertising to subsidize the cost of publication, and yousaid:“If related advertising is allowed, make sure content of articlesremains unbiased.”“Looks sharp and professional, articles timely and useful.LOVE the no-ad content (despite cost concerns) becauseit leaves me feeling neutral and unbiased in terms of product.”“Advertising to subsidize the cost is a good idea, so longas the amount of content supersedes the amount of ads.”Additional suggestionsYou also had some additional suggestions for us pertainingto content and availability, including:“More how-to articles pertaining to planning.”“Include more material regarding employee-funded benefitsat the work site.”“Continue with educational, implementable ideas.”“I’d focus on integrating it with social networking sites likeFacebook and Linkedin. Those sites generally provide vehiclesfor linking to publication blogs.”“I would like to see more articles and sales ideas thatwould be helpful in working with middle market clients asopposed to the affluent market.”“Include info on new investment strategies, estate-planningstrategies, insurance strategies, etc.”“How about printing every month?”Tell us what you think!E-mail us at WCM@TheAmericanCollege.eduConsidering CFP ® Certification?Taking action now will save you time and moneyAccording to the CFP Board’s new requirements, students who starta board-certified educational program beginning in 2012 will be requiredto take a seventh course. The new course mandates both writtenand oral financial plan presentations. Students who begin theirprogram by December 31, 2011, will be allowed to complete theirstudies under the current six-course rules.Having taken electives for other programs that are in the CFP ® curriculumdoes not mean you have met the requirements for startingyour program this year. Contact a student counselor who can reviewyour current program status and discuss what you can do to maintainall of your educational options.The national CFP Board exam will also be changing in 2012. For currentCLU ® and ChFC ® designees, the November 2011 exam will beyour last opportunity to challenge the test without being required totake the new seventh course.Questions? Visit TheAmericanCollege.edu or check your status witha counselor today at 888-263-7265.Drum roll, please!The iPad winner is…Gregory L. Scherschel,CLU ® , ChFC ® , CASL ® , LUTCFColumbus, IndianaGreg’s name was randomly selectedfor an iPad II as a resultof completing our recent WealthChannel Magazine survey. Greg isa financial advisor with NorthwesternMutual Financial Network andhas been with Northwestern for 27years! Congratulations, Greg, andthank you for your input.FALL 2011 | The Wealth Channel Magazine | 103

the collegeInnovative New Program for ParaplannersThe American College launches online Certificatein Paraplanner DevelopmentThe American College hasdeveloped a new program,the Certificate in ParaplannerDevelopment, tomeet the needs of thoseinterested in becomingparaplanners or increasingtheir existing skills asplanner associates. Thenumber of paraplannersand their scope of dutiescontinue to increase as theprofession becomes evermore complex. Planners continue to look for waysto serve clients more effectively and rely on their associates,who may not have had adequate trainingin the field. This new certificate program providesthe necessary core education in the fundamentalsof financial planning, pairing two outstanding textbookswith cutting-edge online delivery, videos andtesting.The first text, Foundations of Financial Planning:An Overview, includes the basics of risk management,the planning process, employee benefits planning,investments, income tax planning, retirementplanning and estate planning as well as Social Securityand Medicare. It offers planners’ associatesthe context they need to become more effective intheir work and to expand their contributions to thepractice. The second text, Foundations of FinancialPlanning: The Process, takes a deeper dive intoclient-based skills, including identifying markets,communications, fact-finding, analyzing information,plan construction, risk tolerance, time value ofmoney, asset allocation and other topics.“This certificate should be required for everyonecoming into the business,” said Professor Quist-Newins. “It’s just such good stuff. There are twowell-written, comprehensivebooks that provide asolid overview of the elements,scope and processof financial planning. Thecourse takes a broad approachto financial planning,helping the paraplannerprovide contextto individual cases.”The advent of the paraplannerposition has allowedplanners to be moreeffective and has enabled those interested in thefinancial services industry to gain essential experiencethey can then leverage for their own careers.“This is a major opportunity in the profession,” saidQuist-Newins. “A paraplanner position is ideal forsomeone looking for a part-time engagement or onewhere they can learn the business. Serving as a paraplannerallows them to develop their skills withoutthe financial risks inherent with being on commission.”Training for paraplanners has not kept pace withthe increasing interest in this type of position. Nowplanners have the option of offering this highly affordable,comprehensive program to their assistantsknowing they will learn what they need to know.The online learning tools are designed so that paraplannerscan complete the program on their ownschedules and take up to a full year to finish bothrequired online examinations. Video segments areincluded in the online toolkit as well, allowing studentsto learn from some of the best planning professorsabout the key concepts of the course.For more information, visit TheAmericanCollege.edu/Paraplanner.104 | The American College | FALL 2011

Section Contents: The 2011 Knowledge Summit 106 Faces of the Alumni 108 Alumni in Action 110 Living a Life of Significance 112 Edward Woods – First American College President and Industry Pioneer 113 Advancement 116alumniFrom the Presidentby Jayne N. Schiff, CLU ® , ChFC ® , REBC ® , CAP ® and Alison Pettine, CLF ®Jayne N. Schiff (left) and Alison Pettine (right)Hello friends, alumni and fellow Wealth Channel Magazine readers,We thank you for your ongoing dedication to The American Collegeand to continuing education within the financial services industry. Asthe premier financial services College, we are here to provide you withthe very best educational opportunities in the industry. That’s why weare excited to announce our 2011 Alumni Tour.. Your College is comingto YOU, hosting two exciting educational and networking events in yourhometown, connecting you with other industry thought-leaders in yourarea.The Alumni Tour will feature two stops—Dallas, TX and Washington,DC. At each of these events, Dr. Barton, CAP® will bring you the latestinformation on the state of the industry and The College. Each event willinclude up to two additional speakers and will offer CE credit. Lunch isincluded in each program, which lasts from 10 a.m. to 2 p.m. Pacific Lifehas generously sponsored all three events.As a loyal friend and alumnus of The College, we understand how important it is for you to stayup-to-date on current industry trends and engage with other financial services professionals inyour area.Your College wants to see you there! Be sure to mark your calendars for these events:• Dallas – November 10, 2011, Embassy Suites Dallas-Frisco• Washington, D.C. – December 2, 2011, JW Marriott Washington, D.C.Please visit TheAmericanCollege.edu/tour2011 for more information and sign up for each event.Don’t miss out on this great opportunity to reconnect with your College, receive CE credit andnetwork with fellow alumni!Jayne Schiff, CLU®, ChFC®, REBC®, CAP®President, The American College Alumni Association RelationsAlison Pettine, CLF®Director of Alumni Relations

alumni associationThe 2011 Knowledge SummitA winning eventFrom Kristen Hertzenberg’s opening performance of the National Anthem to the conclusion of Commencementexercises three days later, the 2011 American College Knowledge Summit in Las Vegas exceededeveryone’s expectations.Eric B. GordonEric is the assistantvice president forCommunicationsat The AmericanCollege.eric.gordon@TheAmericanCollege.eduhighlights ofthe event included:• A spontaneous conversationbetween Paul S. Amos,II, President of Aflac, andLaurence Barton, CAP ® ,Ph.D., president and CEOof The American College.Attendees were able to pullback the curtain and see whatmakes a world-class companylike Aflac tick.• Insights into the newRepublican Congress from AlanSimpson, retired U.S. Senatorfrom Wyoming. Who knewthat Alan Simpson could beso funny? Mixed in with theTOP: Paul S. Amos II,President and CEO ofAflac (left), sits withPresident and CEO ofThe American College,Dr. Barton, CAP ® , Ph.D.,(right).RIGHT: Major Gen.Vincent Boles, USA (Ret.)humor were serious insights into our economy, our government and the issues that will affect thefinancial services community.• A presentation on leadership from U.S. Army Major General (Ret.) Vincent E. Boles. Drawingon his military experience Major General Boles inspired the audience to draw successfully on theirorganizations’ biggest asset—their people.• Joe Jordan’s presentation offering key information on providing families with worry-free retirementand seeing that job as a vocation rather than simply a profession. Afterwards, attendees were giventhe opportunity to get a personalized copy of Jordan’s book, Living a Life of Significance, whichdebuted at the Summit. All came away with a renewed appreciation for the importance of financialservices and the value we provide to individuals and families.• Listening to a disability insurance presentation by Jason Early, an Associate from CFG/NewEngland Financial, and Debra Boblitt, CLF ® , senior vice president, State Farm Insurance. HearingJason describe the plane crash that took his father’s life and left him temporarily without the use ofhis legs brought home the importance of disability insurance. Boblitt’s added information aboutovercoming objections to selling this product provided a real one-two punch.• A heartbreaking description of Alzheimer’s and how it affects families. Attendees were deeplymoved by Meryl Comer’s presentation about caring for a husband with Alzheimer’s. By the end ofher presentation, everyone in the room better appreciated their role in helping families financiallycope with debilitating diseases.106 | The American College | FALL 2011

• The Alumni Hall of Fame Lunch. Someof the great legends of our industrygathered together to honor one of theirown. Making the event even morespecial was the tribute video featuringchildhood pictures of honoree Sal Farina,MSM, CLU ® , ChFC ® , CLF ® . The videoshowed how anyone, even from the mosthumble of backgrounds, can find successin our industry.“You have reason to be proud…Many of you are the ones sitting sideby-sidewith clients or customers… talking to them about ways theirhard earned money can work harderfor them … or how those extra fewdollars, in many cases, can begin toprovide a lifetime of protection in thetragic or unexpected event of theirdeath.What an honorable, noble positionto be in—earning the confidence ofa family in your community who trustsyou to help them make the best decisionsfor their family.The designation or degree you’veearned backs you up…adds to thatcredibility…and instills in your customersa certain unwritten, almost inthe-backgroundpeace of mind whentalking about some of life’s most complexquestions.”Perhaps the best part of the American CollegeKnowledge Summit in Las Vegas was the Commencementexercises. Crossing the stage as agraduate was both a celebration of educationalachievement and a career milestone for the hundredsof professionals in attendance.Mike Davidson, CLU ® , vice chairman andthe chief agency & marketing officer with theState Farm Insurance Companies, during hismoving commencement address, said:His words helped everyone in the audience tounderstand that financial services is more thanjust selling products. It is about helping peoplecope with some of life’s most difficult challenges.At the conclusion of the 2011 American CollegeKnowledge Summit in Las Vegas, graduateshad a renewed sense of pride in being financialservices professionals and graduates of this prestigiousinstitution.welcome new board membersFoundation DirectorsTrusteesDebra Boblitt, CLF ® served as national President’sCircle co-chair and was named Alumna of the Month atThe College in 2007. She is senior vice president, Mid-America Zone, at State Farm Insurance.Salvatore F. Farina, MSM, CLU ® , ChFC ® , CLF ®previously served as president of the Alumni Associationand currently volunteers as national President’s Circleco-chair and the Liddy/Joseph Chair in Leadership atThe College. He is managing partner with New York LifeInsurance Company in Long Island.Wendy A. Benson joined MassMutual in 2009 asthe Vice President Architecture and Infrastructure-MMLInvestor Services, LLC at MassMutual Financial Groupin Springfield, MA. Prior to joining MassMutual, Wendywas President of Signator Investors and Chief OperatingOfficer at John Hancock Financial Network.John Haver, JD, CLU ® , ChFC ® serves as senior vicepresident, Individual Producer Sales, at Mutual of OmahaInsurance Company. John manages and directs all salesactivity for the company’s brokerage and agency divisions.He joined Mutual of Omaha in 1997.Terri R. Kallsen, CFP ® is executive vice president atFirst Command Financial Planning in Fort Worth, Texas.She previously worked as senior vice president WealthManagement at USAA and earlier was vice president atThrivent Financial for Lutherans.Deanna M. Mulligan, CLU ® , ChFC ® is president andCEO of The Guardian Life Insurance Company of America.Deanna joined Guardian in 2008 as executive vice president incharge of the company’s Individual Life and Disability business.She was appointed president and chief operating officer ofGuardian in 2010 and named CEO effective July 1, 2011.Randy F. Wallake, CLU ® , ChFC ® was named president ofSecurian Financial Group, responsible for all aspects of thecompany’s insurance and annuity business in 2007. He alsoserves on the Finance Committee and as vice chairman of theBoard of Directors for Minnesota Life, a Securian affiliate, andis chairman of the board of Securian Trust Company.Robert “Bucky” Wright, Jr., is executive vicepresident, AXA Equitable Life Insurance Co., and vicechairman and chief sales officer, AXA Advisors, LLC. Buckyjoined AXA Advisors in 2004 after spending the first 28years of his career with MONY Life Insurance Company.FALL 2011 | The Wealth Channel Magazine | 107

faces of the alumni1234561. Former U.S. Senator (R-WY) and co-chair of President Obama’s Deficit Commission, Alan Simpson, presents an outline on what is aheadfor the new Republican Congress, clients’ money, and how it will affect the U.S.2. At the 2011 Commencement ceremony in Las Vegas, Todd Mason, CLF ® , LUTCF of AFLAC walks across the stage to shake hands withDr. Barton, CAP ® , Ph.D. in honor of his completion of the Chartered Leadership Fellow designation.3. Student speaker, Gail Chrisley, MSM, CLU ® addresses all graduates at the 2011 Knowledge Summit in Las Vegas.4. Regina Holmes, CLU ® , ChFC ® , Englewood, Colo., (left); Andre Ginnane, CLU ® , LUTCF, Tempe, Ariz., (center); Tameka Brigham,Englewood, Colo. (right).

78 9105. A presentation by Meryl Comer, President of the Geoffrey Beene Gives Back– Alzheimer’s Initiative, shared her own personal experiences with this dreadeddisease and discussed the many challenges facing Baby Boomers.6. Participating in The American College’s 2011 Alumni Hall of Fame Inductionceremony were (from left to right) Susan M. Cooper, CLU ® , ChFC ® , CAP ® , CFP ® ;Michael C. Davidson, CLU ® ; Christopher O. Blunt, ChFC ® , CAP ® ; Laurence Barton,CAP ® , Ph.D.; Jayne N. Schiff, CLU ® , ChFC ® , CAP ® , REBC ® ; Paul Colflesh, CLU ® ;Salvatore Farina, MSM, CLU ® , ChFC ® , CLF ® ; Albert J. “Bud” Schiff, CLU ® , CAP ® ;Charles C. Jones, MSFS, CLU ® , ChFC ® , CASL ® , CAP ® , AEP.7. American College Trustee Susan M. Cooper, ChFC ® , CAP ® , CFP ® , CLU ® ,Managing Partner, Penn Mutual, (front far left), and Foundation Board MemberDebra Boblitt, CLF ® , senior vice president, State Farm Insurance (front left center),participate in the inaugural “Women of The American College: Leadership ThroughLearning” Recognition Breakfast during the 2011 Knowledge Summit.8. Seyed Shahram Richard Kazemi Mohammadi, MSFS, LUTCF walks across thestage to receive his diploma for the completion of the Masters of Financial Servicesdegree from Dr. Walter Woerheide, CFP ® .9. Jason Early, Associate, CFG/New England Financial, discusses the importance ofdisability insurance in today’s market and how to prepare for potential disaster.10. Michael C. Davidson, CLU ® salutes new graduates at the Commencementceremony during this year’s Knowledge Summit in Las Vegas.

alumni association | alumni in actionJohn Baier, MSFS, CLU ® , ChFC ® , CFP ® , CLF ® is the new president of GAMAInternational. Baier has been the Managing Partner of the New Jersey General Officeof New York Life Insurance Company, New York since 1999. GAMA International is aninternational professional association that supports the professional development of fieldleaders in the insurance and financial services industry.Lee Bethel, CLU ® , ChFC ® , CAP ® , RHU ® , REBC ® , ChHC ® . The AmericanCollege is proud to announce Lee Bethel as the first recipient of the ChHC ®designation! Congratulations!Amy Share Brennan, CLU ® has been inducted into MetLife’s Hall of Fame. Workingfor Cypress Financial Group, an office of MetLife, Amy has joined the company’s prestigiousgroup of financial services representatives as an inductee for 2010. Amy has beenrecognized throughout her career for her unwavering commitment to serving her clientswith pride and professionalism.MAJ. Gregory L. Clark, LUTCF received the “Distinguished Alumni Award” fromthe Florida A&M University National Alumni Association for his accomplishments andcommitment to the University. As a financial advisor, insurance underwriter, and 22-yearveteran in the U.S. Army Reserve, Clark focuses on helping individuals and groups succeedby providing quality advice and customized plans for real results to real people.Marvin Feldman, CLU ® , ChFC ® has been named the 2011 John Newton RussellMemorial Award winner, the highest honor given by the life insurance industry. Feldmanwas presented the award at the NAIFA Career Conference and Annual Meeting inSeptember as a tribute to his 44 years of service and contributions to the industry.Joe Kelley, CLU ® , ChFC ® has been named a partner in an executive leadership role atVersata, where he is involved with Distribution Channel Management. For over 20 years,Versata has specialized in helping design and manage compensation plans for insuranceand brokerage companies. Joe is past President and CEO of American General Life andAccident Insurance Company. He has served three terms on The American College Boardof Trustees and is currently a member of The College’s Foundation Board of Directors.Joyce Ladd, CLU ® . In May, 2011, Joyce celebrated 23 years as an Agent and RegisteredRepresentative with State Farm Insurance Companies. During her career, she has qualifiedfor Legion of Honor and Ambassador Traveler recognition. She has been recognized as aSelect Agent for 2011.Vince Vitiello, CLU ® has joined The Producers Group as executive vice president ofThe PG East. The Producers Group is planning a major expansion in the eastern halfof the United States, and Vince will lead that initiative. Vince will bring over 25 yearsof experience in the life insurance industry to his new office in New York City, as well asworking nationally with the company.Don Wendel, CLU ® of Horace Mann Insurance Company received a prestigiousinsurance industry award. The National Association of Insurance and Financial Advisors(NAIFA) in Southern Minnesota presented Wendel with the National Quality Award for the23rd consecutive year. The award is given to insurance advisors who have a high level ofpolicy placement and persistency.110 | The American College | FALL 2011

alumni associationYoung AlumniWe are proud to salute, Jay Kenerly, MSFS, chief operating officer/directorof Marketing of Plybon and Associates in Greensboro, NC, as an outstandingyoung alumnus. Kenerly has made a strong contribution to the industry throughhis success at Plybon and Assiociates, as well as being honored as a 2011 QualifyingMember of Million Dollar Round Table. In June 2011, Jay proudly acceptedhis diploma for the MSFS degree from Dr. Barton, CAP ® , Ph.D. at theKnowledge Summit in Las Vegas.In addition to his industry efforts, Kenerly also is involved within his community.He serves on many boards including as a board member of Holy Trinity EpiscopalChurch Day School and a chairperson for the Future Fund of Greensboro.“The American College not only educated me at the highest level available inour industry, but also introduced me to the brightest minds in the financial servicesworld,” said Kenerly. “As a graduate, those same people continue to bethere for me as both friends and resources. My MSFS degree, combined withthe support of the American College faculty and student body, has given methe knowledge and confidence to dig deeper with my clients, strengthening myrelationships and cementing my role as a trusted advisor.”We are also proud to recognize Deborah Giordano-Manno, ChFC ® , CASL ® ,of State Farm, who is responsible for Northeastern Zone’s DevelopmentalAgency Field Office. She is the zone point of contact for a technological initiativeand enjoys meeting the demands of her schedule utilizing some of this newtechnology. She is currently pursuing her MSM and CLU ® .In addition, Giordano-Manno is very active in the academic and social lives ofher two boys, Justin and Colton. Deborah serves as a homeroom parent, a PTOvolunteer and as a den leader for the Boys Scouts of America. She has supportedmany charities as a fundraising chair and enjoys being an active memberof her community.We commend and thank Jay and Deborah for their dedication to the industry,education and this community.TAC has helped my careerAs a new producer I had no experience with Financial Services Sales. At thattime (1989) I joined an LUTC class that was called “exploring your personal markets.”The balance of academic with practical work and action projects gave thereal world experience I needed to gain competence and confidence.As a field leader I had responsibilities for training our new agents and neededa broader spectrum of knowledge. Again, The College was there for me withthe ChFC ® curriculum.More recently I’ve had the occasion to care for my mother-in-law in our home. Ihad both a personal and professional interest in the financial services and insuranceneeds of the senior market. I turned to The College and again found justwhat I was looking for in the CASL ® designation.As a lifelong learner it is my goal to stay relevant and remain current so thatI can support my employer in the best way possible. I also choose to set anexample for my boys that educating yourself does not end with the receipt ofa college diploma.– Deborah Giordano-Manno, ChFC ® , CASL ®Sal Farinahonored withAlumni Hall ofFame AwardSold out audience of alumni andfriends of The College joined in the celebrationof Salvatore F. Farina, MSM,CLU ® , ChFC ® , CLF ® on Friday, June 10,at the 2011 Knowledge Summit in LasVegas, as Sal became the seventh inducteeinto The Alumni Hall of Fame.Bud Schiff, CLU ® , CAP ® was on handto present Sal with his Hall of Famebowl and blazer. Sal was honored withthis award for his leadership withinthe financial services industry and hiscommitment to the value of professionaleducation at The American College.Sal has expressed his loyalty anddedication to The College through hisparticipation and leadership on TheCollege’s Foundation Board of Directors,as President’s Circle co-chair andas past president and member of theAlumni Association. Congratulationsto Sal on this magnificent achievement!

alumni associationLiving a Life of SignificanceBased on more than 30 years of personal experience, Joseph W. Jordan, senior vice president,MetLife, shares his observations on the fundamental changes of the financial servicesindustry; its effect on his own personal journey of discovery; and its impact on howprofessionals today engage and inspire others to act with the best of intentions on behalfof their clients.His insightful new book, Living a Life of Significance, is sure to impact your connectionto this incredible profession and every client you serve. Jordan is an industry-renownedthought leader and celebrated speaker in the areas of behavioral finance, client-centrictools, ethical selling and client advocacy. He helps financial professionals around theworld recognize and celebrate the intrinsic value they deliver to their clients.Jordan explains, “We can provide peace of mind to families when their loved ones dieprematurely. We can provide people with a worry-free retirement, with an income theycan’t outlive, so they can maintain their independence. We can protect that income ifthey get sick so they maintain their dignity. And, we can provide a legacy when they die.I believe this book will help my fellow professionals come to the realization that ours is avocation not simply a profession.”You can order Joseph W. Jordan’s book, Living a Life of Significance, for $14.99 plusshipping, at TheAmericanCollege.edu/ads/joe-jordan. You can also contact The American College Alumni Association at Alumni@TheAmericanCollege.eduor call (610) 526-1477. All proceeds will go to The American College. Discounts are available formultiple orders and for MetLife employees. Purchase your copy today and accelerate your own journey to significance!aLuMni study cruisE2011 Russia Cruise attendees include, from left, FRONT ROW: Michael May, CLU ® , ChFC ® , LUTCF; Lester “Bud” Rowell, Jr., CLU ® ; JayneN. Schiff, CLU ® , ChFC ® , CAP ® , REBC ® ; Susan Martin; William Lemoine; Paul Nicklas, CLU ® , ChFC ® ; SECOND ROW: Laurence Barton, CAP ® ,Ph.D; I. David Cohen, CLU ® , ChFC ® , LUTCF; Reginald N. Rabjohns; Kevin Baldwin, CLU ® , ChFC ® , CAP ® ; John Rocco, Sr., MSFS, CLU ® ; AlbertJ. “Bud” Schiff, CLU ® , CAP ® ; Robert W. Dixon, CLU ® ; Peter C. Browne, LUTCF; THIRD ROW: Nancy Hauser, CLU ® , ChFC ® ; E. Hardy Vaughn,MSFS, CLU ® , ChFC ® ; Betty Brady; Matsue Yamazaki; Lisa Kohler, CLU ® , ChFC ® ; Craig Lemoine, CFP ® ; Charles T. Cronin III, CLU ® , CAP ® ;FOURTH ROW: David F. Woods, CLU ® , ChFC ® , LUTCF; Earl Prolman, CLU ® , ChFC ® ; Theodore Kurlowicz, JD, LLM, ChFC ® , CLU ® , CAP ® ;Rickie Koo; Rockford Williams, CLU ® , ChFC ® .The 112 trip | The included American a College robust | CE FALL program 2011 and networking events.

alumni association | a brief historyEdward WoodsFirst American College president and industry pioneerby Virginia E. WebbVirginia E. WebbManaging theKnowledge Centerat The AmericanCollege, Virginiadoes research forfaculty, students andgraduates, as wellas administers thetechnical servicesdepartment ofthe Vane B. LucasMemorial Library.virginial.web@TheAmericanCollege.eduAndrew Carnegie once said: “Teamworkis the ability to work togethertoward a common vision. Theability to direct individual accomplishmenttoward organizationalobjectives. It is the fuel that allowscommon people to obtain uncommonresults.” Edward Woods, asone of our College’s founding fathers,brought to the table his vast lifeunderwriting and industry success, apassion for the art of salesmanship and loveof country. He saw life insurance as being essentialfor those in old age, widows, for education of children,protection of home, philanthropy, paymentof debt and as an estate-planning tool.Woods stressed that “salesmanship is not thesame as selling,” and pointed to many fields whereprofessionals were trained without salesmanshipbeing included. He presented many of his researchfindings at the NALU annual meetings and servedon the NALU Committee on Scientific Salesmanshipfor many years. Traits Woods felt essential for asalesman included: appearance and manner; schoolingor education; system; health; industry; convincingness;knowledge; character; thrift and initiative.He felt it was his patriotic duty to educate and trainsuccessful insurance agents.He wrote books including: Life Underwriting as aCareer (1923), America’s Human Wealth: The MoneyValue of a Human Life (1927) and The Sociologyof Life Insurance (published posthumously by Dr.Huebner in 1928).He served as president of NALU (now NAIFA)from 1915-1916, addressing 23 associations, traveling26,679 miles and making 48 addresses duringthe course of his presidency.He began the Carnegie Bureau of SalesmanshipResearch in 1916 and helped to create the CarnegieSchool of Life Insurance Salesmanshipin 1919 (known today as Universityof Pittsburgh). This marked the firstformal insurance education trainingand preceded the formation ofThe American College.Edward Woods was born in1865 in Pittsburgh. He attendedschool but left at age 15 to go intothe life insurance business with hisfather at the Equitable Life AssuranceCompany (now known as AXA Equitable).When his father retired in 1890, Woods became ageneral agent. Later he established his own agency,The Edward A. Woods Company.For some 20 years his insurance agency was thelargest life insurance agency in the world. Woodswas also active in the Pittsburgh area and gave backto his community with his time and treasure.On March 25, 1927, Woods was elected the firstpresident of The American College and served onthe Board of Directors. He died on November 30that same year. The College established the EdwardWoods Foundation, the school’s first endowmentfund. When announced at the 1928 NALU Convention,the response was immediate and generous.More than $50,000 was pledged. Some of thosefunds later helped to finance The College’s firstheadquarters building in Philadelphia. Woods’s estateincluded insurance on members of his familyas well as those in his company. He even included apolicy to provide a $100 Christmas present for hiswife each year.The American College awarded its highest honor(The Huebner Gold Medal) posthumously to EdwardWoods in 1978. We owe him a debt of gratitudefor his energy, foresight and service.FALL 2011 | The Wealth Channel Magazine | 113

The mystique of South America is unrivalled, and many have said “some dayI want to see the breathtaking beauty of Chile, Peru, Ecuador and beyond.”Best of all, we will spend a full day exploring The Panama Canal, one of theengineering wonders of the world; if you have seen it before, rapid changesare underway; and if you have never taken this journey, you will explore themost strategic naval gateway in the world.15 Nights March 11–26, 2012Day 1Valparaíso, ChilePicturesque neighborhoodsoverlook this busy port andthe Pacific Ocean. Explore thelandmarks that make this a World Heritage site.Day 2La Serena, ChileLa Serena, also called “TheSerene One” contains pristinewhite sand beaches, theamazing stargazing MamallucaObservatory, and the region’s best seafood.Day 4Arica, ChileSand dunes, fertile valleys andmelting snows surround this cityfilled with cultural attractions.The Plaza Colon, the Cathedralof San Marcos, and the nearby Azapa Valley consisting ofColumbian artifacts are a few of the treasures.Day 6Lima, PeruLima once served as the seatof power for the SpanishEmpire in South America. Asthe cultural and economic heart of Peru, you will beenchanted by the museums, catacombs, antique textsand gold.Day 9Manta, EcuadorVisitors to this port have accessto an ancient culture and the Bahia de Manta with it’snational park including beautiful cloud forests, archeologicalsites, and beautiful nesting seabirds.Day 11The Panama CanalThe Panama Canal is describedas “The land of the divided, theworld united.” For fifty miles, the canal transects theemerald jungles of Panama and gives one a greatappreciation of the creation of this waterway.

advancementCelebrity Infinity ★ ★ ★ ★Superb Accommodations from $1,700“The American College cruises bring us wonderfulports of call, a first-class ship, the chance to interactwith some of the industry’s best minds, and continuingeducation credit. If there is one investment you makein yourself this year, this is it.”Lisa Lee Kohler, CLU ® , ChFC ®Canfield, OhioDay 12Colon, PanamaAs Panama’s second largest city,Colon offers significant marvelsthat are both on par with Egypt’s pyramids.Panama CanalColombiaEcuadorPeruDay 13Cartagena, ColombiaStroll through the quaint streetsof this walled city founded in 1533. Browse boutiquesthat used to house dungeons in this picture-perfect SpanishColonial village.Day 16Ft. Lauderdale, FloridaCulture, fine cuisine, nightclubs,and beautiful beaches floodedwith sunshine make this a year round destination.Days 3,5,7,8,10,14 and 15 At SeaWhile at sea, earn your CE credits with our two, half-dayinnovative sessions led by Dr. Larry Barton, CAP ® andTip Cronin, CLU ® , CAP ®ChileSpecial discounted one-wayairfares to Santiago, Chileare available!Call our exclusive agent: 800-541-2612Mail: Aladdin Travel Services Ltd/American Express294 North Main StreetAlpharetta, GA 30004Email: Alison.Pettine@TheAmericanCollege.eduFALL 2011 | The Wealth Channel Magazine | 115

116 | The American College | FALL 2011advancementCollege Creating NewCenter for Veterans Affairsby Erin GazicaMission-minded. Teamoriented.Disciplined.The more than 4 millionindividuals whohave honorably servedin the U.S. Armed Forcessince September 11,2001, are born leadersand proven performers.However, our country’sheroes face many obstaclesas they leave theirmilitary careers behindand attempt to enter theAmerican civilian workforce.In response to the compelling need to help returningsoldiers find a rewarding career in civilianlife, The Penn Mutual Life Insurance Companyrecently announced an unprecedented gift of $2.5million over five years to build a Center for VeteransAffairs and provide scholarship opportunities atThe American College.“Our service men and women are world-classheroes, and they deserve a world-class opportunityin an industry that values their professionalismand commitment to protecting people,” saidEileen McDonnell, president and CEO of PennMutual. “This gift to The American College is justthe start—we see unlimited possibilities to identifymen and women who would be superb life insuranceproducers and financial professionals.”According to the U.S. Department of Labor, veteransface steeper unemployment rates than the restof the population. The report, Employment SituationSummary, produced by the Bureau of LaborStatistics in February 2011, indicated that while thenational unemployment rate was at 9 percent, theunemployment rate among veterans was found tobe 15.2 percent.Eileen C. McDonnell, President and CEO ofThe Penn Mutual Life Insurance Company,with Russ Figueira, MSM, CLF ® , Director of theCenter for Veterans Affairs at The AmericanCollege.Erin GazicaErin is the Directorof Communicationsin the AdvancementDivision at TheCollege.erin.gazica@TheAmericanCollege.edu“Things may get worse before they get better,”said Allen McLellan, CLU ® , ChFC ® , CASL ® ,CFP ® , LUTCF, Associate Dean of The College anda retired Air Force Lt. Colonel. “The unemploymentrate among veterans is expected to increase asmore soldiers return home from overseas missionsin the Middle East. But thanks to Penn Mutual,The American College will have the resources itneeds to reach out to active duty members, reservistsand veterans, and offer them their next careerof significance. Their hard work, dedication, focusand ability to succeed in the face of seeminglyinsurmountable odds is exactly what the financialservices industry needs during these challengingeconomic times.”The Center for Veterans Affairs will work with aspecial panel of existing and retired military leadersand insurance industry recruiters to create a “missionroadmap” for service men and women whoare interested in becoming insurance agents andfinancial advisors. Penn Mutual’s gift will providemany deserving military veterans with scholarshipsto pursue designations at The American College. Itis anticipated that these students will begin graduatingfrom The College within two years.Penn Mutual has encouraged its producers andhome office executives to study with The AmericanCollege since The College’s founding 84 years ago.“This is the citadel of study for anyone who expectsto build a practice for themselves in providing lifeinsurance and annuity solutions, and it was a naturalchoice for us,” added Thomas H. Harris, CLU ® ,ChFC ® , senior vice president, Penn Mutual.Penn Mutual’s gift will provide foundationalfunding to create the Center. Opportunities existfor other companies or individuals to support thisinitiative by providing scholarships and job opportunitiesfor deserving active military members, reservistsand veterans participating in the program.For more information, contact Allen Thomas, JD, CAP ® , associatevice president of Advancement, at (610) 526-1422 or allen.thomas@TheAmericanCollege.edu.

advancementNorthwestern Mutual EstablishesCenter for Financial SecurityO. Alfred Granum, CLU ®Northwestern Mutualhas recently committed$3.3 million to fundThe Northwestern MutualGranum Centerfor Financial Securityat The American College,which will producecutting-edge research tosupport the industry’sbest financial representativesand leaders.Northwestern Mutualis soliciting financial support from its managingpartners, managing directors and financial representatives,while also encouraging them to pursuedesignations from The American College. NorthwesternMutual will donate $1,000 for every CLU ® ,ChFC ® , CASL ® , and CFP ® designation earned.The company kicked off its fundraising efforts at itsannual meeting, July 23-26 in Milwaukee.“Northwestern Mutual is committed to partneringwith The American College to create TheNorthwestern Mutual Granum Center for FinancialSecurity,” said Todd Schoon, JD, CLU ® , ChFC ® ,Executive Vice President at Northwestern Mutual.“The Center will reinforce our commitment to lifelonglearning, while affirming Northwestern Mutual’sposition as the foremost provider of financialsecurity.”The Center will honor the lifetime achievementand industry contributions of O. Alfred Granum,CLU ® . Granum is the creator of the well-known“One Card System,” a lasting tool that continues tobe the activity management system of choice amongfinancial sales representatives today. Granum servedas general agent of Northwestern Mutual’s Chicagoagency, building one of the most successful insuranceagencies in the world.The American College established the O. AlfredGranum Chair in Management honoring Al Granumin 2002. The Granum Chair supports researchand development of programs to improve managementand leadership in the financial services industry.The Northwestern Mutual Granum Center forFinancial Security will expand upon the work ofthe Granum Chair, currently held by Dr. Barton,CAP ® , Ph.D., president and CEO of The AmericanCollege.“It is an honor to serve as the Granum Chair andto celebrate this investment in knowledge,” said Dr.Barton. “This Center will become an incubator ofideas and solutions that will benefit agents from allcompanies. Anyone who has seen the rebirth of TheAmerican College has to be excited about The GranumCenter as we chart plans for the next generation.”The Granum Chair and other senior staff of theCenter will promote the insurance industry, speakingin national media outlets such as CNBC andCNN about the positive benefits of insurance andthe value of human life. The Center will be a beaconfor the financial services industry, promotingfinancial literacy to all Americans and providing nationalexposure to such issues.Other initiatives of the Center will include:publishing white papers and undertaking lecturesto present original research on contemporary insuranceissues; partnering with major industry organizationssuch as AALU, MDRT, NAIFA andGAMA; establishing and strengthening ties withlegislative and regulatory bodies; consulting withstate governments on underwriting, premiums andcontract analysis; and working with internationalinsurance companies in the formation of new productsand operations.“Just as we individually give back to those causesthat are most important to our family and our communities,the Northwestern Mutual family is givingto honor those things vital to our collective success—professionaldevelopment, the accomplishmentsof Al Granum and the industry leadership ofNorthwestern Mutual,” noted Schoon.FALL 2011 | The Wealth Channel Magazine | 117

advancementA Superb StewardRecent President’sAward RecipientsPeter C. Browne, LUTCF in 2010;John J. Rocco, MSFS, CLU ® in 2009;Carroll Walker, CLU ® in 2008;C. Sherfy Jones, CLU ® , ChFC ® in 2005;Eugene J. Seaman, MSM, MSFS, CLU ® , ChFC ® in 2004;John W. Allen, CLU ® , ChFC ® in 2003;Eleanor W. Allen, CLU ® in 2003Michael Rosenzweig, CLU ® , ChFC ® , received The President’sAward at The American College Foundation Board of Directors’annual meeting in June.Albert J. “Bud” Schiff, CLU ® , CAP ® , CEO of NYLEX Benefits,Trustee, Immediate Past Chairman of the Foundation Boardand current Chairman of the Recognition and Stewardship Committee,presented the award. The purpose of the President’s Awardis to recognize individuals for long-term service to The College’sadvancement efforts. Presented annually by the Foundation, theaward is intended to highlight the importance of the leadershipand stewardship aspects of advancement.President of Rosenzweig Financial Services in New York, NY,Rosenzweig is a member of the Board of Trustees and the FoundationBoard of Directors. As part of his commitment to advancement,he has recently solicited several gifts of $100,000 life insurancepolicies from Penn Mutual leaders and from fellow boardmembers. This guarantee issue life insurance program has yieldeda total of $4.5 million for The College. In addition, he has workedwith staff on determining strategies for engaging younger donorsand for increasing membership in The College’s Alumni Association.In 2012, Rosenzweig will take over as the president of theAlumni Association.College Dedicates La Grassa LevelGloria M. La Grassa, CLU ® , ChFC ® , a 2009 Huebner Gold Medalrecipient and former board member, continues to be oneof The American College’s greatest supporters. On April 22,2011, Dr. Barton, CAP ® , Ph.D. dedicated and officially renamedthe academic floor of MDRT Foundation Hall the La GrassaInsurance and Financial Education Level.La Grassa’s early career path took her from elementary schoolteacher to Director of Human Resources for a brokerage firm.In her first position in the financial services industry, she workedwith one of The American College’s early benefactors, CharlesLamont Post—the man who created and endowed The College’sfirst academic chair concentrating on the study of ethics.During her many years of involvement at The American College,La Grassa faithfully served on both boards. She was secretaryof the Board of Trustees for five years, and a member ofthe Foundation Board of Directors for nine years. She retiredfrom both in 2008.118 | The American College | FALL 2011

advancementAn Unforgettable DonorNed Packell was like many insurance agents in thathe deeply enjoyed taking care of people. Throughthe magic of life insurance he could provide a familywith peace of mind or protect a businessman’slivelihood. But Packell also differed from the typicalagent in one major way. He used the product hebelieved in the most to make a legendary gift to thenonprofit institution that helped shape his career.Packell, who passed away in Tulsa, Okla., onJune 9, 2011 at age 68, gifted a $500,000 life insurancepolicy to The American College back in 1988.He spent his life protecting the lives of others, andin his death he helped protect the future of the greatprofession that provided him with so much joy.“I remember him talking about insurance at thekitchen table since we were big enough to sit at thekitchen table,” said Kimberly Deardorff, Packell’sdaughter. “It was his passion. He was helping peopletake care of their families or their businesses.It’s easier to sell something you believe in, and heabsolutely believed in insurance.”Packell also was a strong believer in education.Beginning in 1961, he graduated as valedictorian ofhis class at Cascia Hall Preparatory School, receiveda college degree from the University of Tulsa, andwent on to earn five designations and degrees fromThe American College over the course of 28 years.A graduate of the MSFS, CLU ® , ChFC ® , RHU ®and REBC ® programs, he proudly displayed hisdiplomas and certificates in his office. His relationshipwith The American College also includedAnnual Fund donations and contributions to theGolden Key Society. Packell was a very successfulgeneral agent, achieving membership in Top of theTable and lifetime membership in the Million DollarRound Table.Packell was also known for his quick wit andsharp mind. He belonged to Mensa, the high IQsociety, which boasts members who score in the top2 percent of the general population on an approvedintelligence test. One of his favorite pastimes wasplaying gin rummy, a thinking man’s game. Hehad a knack for remembering every card that wasplayed, making him tough to beat.His life held many fascinating adventures. Heloved to travel, whether it was spending summerfamily vacations in Sanibel Island or embarking onan African safari with his son, Elliott, in 2000. Hewas a marathon runner who had a black belt in TaeKwon Do. He climbed Mount Kilimanjaro at theage of 58 without oxygen.To Packell, the best adventure was parenthood.He was happiest spending time with his familyoutdoors—in a houseboat, cabin or on the beach.When his three oldest children turned 21, he tookthem on a special trip to Las Vegas. Deardorff stillremembers feeling like a VIP sitting next to her dadin the front row of the city’s best shows, like Siegfriedand Roy and Don Rickles.“He was a wonderful father,” said Deardorff.“He loved his children more than anything. He wasfun and funny. He was Superman to me. He coulddo anything. I loved him and I was proud of him.”Packell is survived by his children, Kimberly,Eric, Elliott, Katie and Melissa; two grandchildren,Ethan and Megan; three sisters, Jeannine, Reneeand Molly; and many nieces and nephews.Packell made his $500,000 life insurance gift toThe American College through the 21st CenturyEndowment Fund. Gifts like his are vitally importantto the continuation of The College’s mission ofproviding the best in financial services education.They help ensure The College maintains a facultyof the foremost thought leaders, develops currentcourse offerings such as the new Chartered HealthcareConsultant designation, conducts publicawareness and advertising campaigns, and deliverscutting-edge digital content on a variety of platformsincluding The Wealth Channel ® .If you are interested in making a planned gift of life insurance toThe American College, please contact Allen Thomas, JD, CAP ® ,associate vice president of Advancement, at (610) 526-1422 orallen.thomas@TheAmericanCollege.edu.FALL 2011 | The Wealth Channel Magazine | 119

advancementLooking for More Income That’s Secure?by Allen Thomas, JD, CAP ®> Meet your financial goals by receiving guaranteed income and benefiting your alma materAllen Thomas,JD, CAP ®Allen is associatevice president ofAdvancement at TheAmerican College,where his area ofexpertise is plannedgiving.allen.thomas@TheAmericanCollege.eduWould you like to receive income for life and perhapsprovide financial security for a loved one? Withthe financial markets being so unpredictable, areyou looking for a high level of income that you cancount on and never outlive? Is there a way to meetyour financial goals and also benefit The AmericanCollege, which has done so much for your professionalcareer?For many of our alumni, the answers to thesequestions are simple. It can start for you when youmake a gift to The American College that pays youand/or a loved one a high level of income for life.You can receive regular payments each year by directdeposit. You never have to set foot in the bank.Earlier this year, Sam Beller, CLU ® , ChFC ®agreed to enter into a charitable gift annuity withThe College. The charitable gift annuity is a contractbetween the donor and The College that ispart gift and part income annuity to the donor.In this case, The College makes annual annuitypayments to Beller for the rest of his life, providinga reliable and dependable source of funds to him.These annual payments will never change duringhis lifetime. Beller also receives an income tax deductionequivalent to the gift portion of the contractin the year he funded the annuity contract.“It’s a win-win-win situation,” said Beller. “Yougain by having the income, which is guaranteed, soif we have another problem like we had in 2008you are still guaranteed your income. Your spousealso has that income for the rest of his or her life.You’ve made a donation to an institution that youbelieve in, and at the end, The College benefits bywhatever is left over when you pass away. It’s a wonderfulproduct.”Here is an example of a charitable gift annuity: A68-year-old donor gives $10,000 to The College inexchange for a charitable gift annuity. The Collegein return agrees to make annual payments to thedonor of 5.5 percent, or $550, payable for the donor’sentire life. These payments are fixed and willnever be subject to market fluctuations.What is equally satisfying is to know that yourlife income gift is helping a truly remarkable organization.The American College touches—andchanges—the lives of more than 40,000 studentsfrom the financial services sector each year.“I owe The American College because TheAmerican College provided me with educationalopportunities for me to learn my craft,” said Beller.“My CLU ® and ChFC ® courses enabled me tolearn more about what I was doing and enabled meto help people better than I could before.”gift annuities recommendationsBased on a gift of $10,000 (minimum amount required).Rates, current as of July 2011, recommendedby the American Council on Gift AnnuitiesAge(s)AnnuityRateAnnualPaymentTaxDeductionOne Income Recipient60 5.0% $500 $2,64170 5.7% $570 $3,84675 6.3% $630 $4,39980 7.1% $710 $4,98685 8.1% $810 $5,60490 9.5% $950 $6,162Two Income Recipient70/75 5.3% $530 $3,21675/75 5.6% $560 $3,50375/80 5.8% $580 $3,82980/85 6.5% $650 $4,447The College would be pleased to discuss a charitable gift annuitywith you. Please contact Allen Thomas, JD, CAP ® , associate vicepresident of Advancement, at (610) 526-1422 or allen.thomas@TheAmericanCollege.edu for an illustration of the income and taxbenefits available to you.120 | The American College | FALL 2011

advancementPlanning for Final WishesFinancial advisors hear itall the time: tales of woefrom clients, prospectsand friends who have hadto deal with locating importantdocuments whenout of their mind.”Fontaine says this lossof composure is typicalof anyone who experiencesthe serious illnessor death of a loved one—a loved one is gravely illeven properly trainedor dies.Who has the power ofattorney? Is there a will?Where is it kept? Whatinsurance is in place?financial planners likeHymel. In addition, thisloss of composure tendsto continue when importantquestions need to beWere the deceased’sanswered—where is thewishes for burial or cremation?Was he or she anorgan donor?person’s power of attorney,is it with the lawyer,when was it last updated,Not even financialwhat is the person’s computerplanners are immune tochallenges when a personaldisaster or familyemergency strikes. ForRoland Hymel, Jr., MSFS, CLU ® , ChFC ® , RHU ®password, where istheir safe deposit box key,at what bank is it located,etc.instance, take Roland Hymel, Jr., MSFS, CLU ® ,ChFC ® , RHU ® . For more than 25 years he was theNew Orleans General Agent for a multi-billion dollarinsurance carrier and won numerous companyand national awards.By the time Hymel elected early retirement in1987, he had built his organization into a networkof three principal companies with more than 90agents in seven locations throughout Louisiana. Alife and qualifying member of MDRT, he held fourdesignations and degrees from The American College,proving his personal commitment to professionaleducation.“I had been in the business for 40 years,” saidHymel. “I had the perfect estate plan. I thought Ihad planned for every eventuality—until my wifewas rushed to the hospital with a heart attack.”Constance J. Fontaine, JD, ChFC ® , CLU ® , Associateprofessor of Taxation at The American Collegeand the Larry R. Pike Chair in Insurance andInvestments, explains that when most people have afamily emergency or death, “everything else shootsWhile not much can be done to prepare oneselfemotionally for such an overwhelming tragedy andthe ensuing complex financial questions, there areorganizational solutions that can bring peace ofmind.One such organizational tool is the File for FinalWishes created by Roland Hymel and his son, RandyHymel, who has more than 25 years of experiencein computer network and systems design. Thefile contains sections for insurance, wills, trusts,powers of attorney, personal checklist, funeral andservices, and records locator. Mary Romagosa, JD,LLM, ChFC ® , CLU ® , MSFS, president of CornerstoneFinancial Advisory Services, Inc., a fee-basedcomprehensive financial and estate planning firm,provided website content and legal assistance forthe project.“I wanted to solve a problem,” said Hymel. Andas he can attest, from his own personal experience,there is still a need for paper documents even inthis age of technological advances. “When you walkinto a hospital to provide doctors with a medicalFALL 2011 | The Wealth Channel Magazine | 121

alumniDid you know that a charitable gift of $1,500 to TheAmerican College qualifies you for membership inThe President’s Circle?Call Mary Phelin at (610) 526-1432.power of attorney, they don’t want to hear, ‘It’s on myhard drive at home,’ or, ‘Here’s a disk.’”The File for Final Wishes is designed to effectivelydistribute possessions, help avoid taxes, avoid conflictsamong survivors, put healthcare wishes into writingand handle other aspects related to final arrangements.With more than $32 billion in unclaimed assets in theUnited States today, the product especially aids the processof locating valuable assets such as bank accountsand investments that could be overlooked during estatedistribution.“It is a great anxiety reducer and it gives you a sense ofstructure and composure when you otherwise wouldn’t haveany,” said Fontaine.The File for Final Wishes is sold on a wholesale basis toboth insurance companies and agencies, so agents may providethem to clients as a helpful planning tool. The Hymelshave generously decided to donate a portion of the proceedsof this product to The American College.Visit fileforfinalwishes.com for more information, or contactRandy Hymel at randy@hymelinc.com or (770) 608-7477 to place an order.122 | The American College | FALL 2011

Section Contents: Debt Reduction Roundup 125regulationsWashington Surprise: A Glimmer ofAgreement in the Fiduciary Wrangle?by Keith Hickerson, MSM> Learn the state of the debate over settling on a fiduciary standard for industry professionalsKeith Hickerson,MSMSenior StrategyConsultant at TheAmerican College,Keith previouslyserved as anexecutive at UNUM.keith.hickerson@TheAmericanCollege.eduIt’s common knowledge these daysthat the right and left never agreeon anything. So why is BarneyFrank writing letters to the SECcautioning them on overreach intheir extension of the fiduciarystandard? Why are House Republicansand some Security and ExchangeCommission (SEC) commissionersexpressing concerns?It’s becoming increasingly clearthat it’s middle-income Americans who may gethurt by an unreasoned, one-size-fits-all approachto a fiduciary standard that could force brokers anddealers into a new business model.Acting in the long-term interestof clients is the only path thatleads to customer satisfaction,retention and referrals.what’s an average investor to do?This change is much more of a problem for thosemaking $50,000 a year than for those making$250,000 a year. Let’s suppose a broad fiduciarystandard is put in place for broker-dealers, creatingadditional compliance costs, potentially limitingthe distribution of proprietary products and resultingin more financial professionals moving to a feebasedmodel. Would an investor of average incomewant to pay for a standalone financial plan? Wouldshe meet the required asset threshold to be a meaningfulclient for a fee-based advisor?For average investors, the consequences couldinclude fewer individuals seeking qualified financialadvice. In fact, a recent study suggests that thecost of advice could double for those at the lowestend of the investment spectrum. According to ahigh-ranking official at Morgan Stanley Smith Barneyin a recent issue of Investment News, the firstsigns of the business-model shift may already beoccurring as brokers work to get ahead of the comingregulatory change. It quickly becomes clearwhy neither liberals nor conservatives want to betagged with this one.runaway regulation isthe order of the dayThe Dodd-Frank bill took a decidedly odd approachto regulation, missing an opportunity todo more on derivatives or with the governmentsponsoredentities that helped cause the mortgagecrisis while meddling in everything from debitcard fees to creating an unwieldy new consumeragency. One result of the massive legislation was tosend government agencies scurrying off to conductstudies and write rules ad infinitum.The mandated SEC staff study on standardsof care came back advocating a single standard ofcare for investment advisors and broker-dealers, afterspending dozens of pages explaining why theyweren’t sure what the impact of the change wouldFALL 2011 | The Wealth Channel Magazine | 123

egulation updatesbe. Nowhere did they identify the specificconsumer harm they hoped to mitigate.Still, they thought implementing a uniformstandard of care was a good idea. Theproposed standard would require brokerdealersand investment advisors providingpersonalized investment advice to retailclients to “act in the best interest of thecustomer without regard to the financialor other interest of the broker, dealer, orinvestment advisor providing the advice.”Certainly sounds good, doesn’t it?let’s play thebest-interest gameEvery successful financial professional works hard to serve clientseffectively and well, and acting in the long-term interestof clients is the only path that leads to customer satisfaction,retention and referrals. Using the legal definition the SEC staffstudy suggests, however, creates some issues. There’s nothingin the language about risk tolerance, client circumstances orthe financial professional’s best knowledge at the time the adviceis delivered. There is also no suggestion as to when bestinterest might be determined: Over the next quarter? The nextyear? The next 20 years?Consider the timing of making that best interest determinationas it might relate to the sale of a variable life insuranceproduct. If the client were to die within a few years afterthe sale, in hindsight, a policy with the highest death benefitwould have been in the client’s best interest. If a raging bullmarket occurs over an extended period, an aggressive variablepolicy with exposure to a portfolio of equities might have beenthe best choice for the client. Were the market to fall, strongerguarantees would have been a better choice. What seemssimple—a noble concept of client best interest—is actuallyvery complicated as the basis for regulation. It’s easy to see theincreased litigation potential, as well.Remember, too, that the uniform standard will technicallychange the existing definition for investment advisors. Eventhough the SEC has suggested interpretive guidance may notchange, the core language that drives regulation and litigationwill be transitioning for both business models, advisors andbroker-dealers.Broker-dealers work now under a suitability standard, withclear rules established before the fact that govern their businessactivities. Advisors working under the fiduciary standard,however, face conduct evaluation after the fact. Regulating aprinciples-based fiduciary standard based on the lack of clear124 | The American College | FALL 2011The SEC has slowed their work onthe fiduciary issue somewhat, bothbecause of limited resources andbecause of the emerging complexityof their regulatory challenge.rules for action is much harder. Currently, broker-dealers areinspected every two years, while investment advisors are inspectedonly once every 10 years on average. In fact, accordingto the SEC, one-third of investment advisors have never beeninspected. Fiduciaries like Bernie Madoff can escape detectionfor a long time, creating considerable investor harm in theinterim.where’s the consumer benefit?The oversight disparity between the two models leads to afundamental question: will consumers be better off practicallywith more financial professionals working under a fiduciarystandard? Ask advocates of a universal fiduciary standard for aconcise description of how consumers will benefit, and you’llget few solid answers. Most will say that eliminating consumerconfusion is important. There’s some truth to the factthat consumers are confused by the entire issue of standardsof care, but they also indicate that they are happy with theirfinancial professionals and their level of market choice. Anyissue of consumer confusion—if that’s really the core issue—could be solved much more easily, with less potential harm,through more robust disclosure requirements.Consumer advocates also talk vaguely about increased consumerprotections of the standards change, but pushed fordetails they offer few. Strangely, these same advocates mentionnone of the potential harm to consumer choice, costs andaccess—harm that could be significant and hit middle-incomeconsumers hardest.has the department oflabor (dol) seen the light?The Employee Benefits Security Administration (EBSA) hasalso been working to update its definition of which retirementplan professionals are fiduciaries. The long-standingmulti-part test could be broadened, with potentially negativeimpact to investors with IRAs or employer-sponsored plancontinued on page 126

egulation updatesDebt Reduction Roundupby David J. Stertzer, FLMI> Possible ramifications of Washington’s national debt-reduction efforts on the life insurance industryDavid J. Stertzer,FLMIDavid is CEO of theAALU. For moreinformation aboutAALU visit AALU.org.stertzer@aalu.orgOur country is arguably at a crossroads—onewith difficult choicesand daunting challenges in all directions.Congress just wrapped upmonths of haggling over an agreementto raise the U.S. debt limitwhile at the same time making adown payment on our long-termdebt dilemma. What some may notrealize is that this is only one checkpointin a long debate over the future of our fiscaland tax policies. As time goes by, and in moreways than one, the life insurance industry and itsproducts could be at risk—and the cost of watchingfrom the sidelines is steep.where do we stand?This past summer, and for the second time in 18months (and the 11th time in the past decade), theU.S. hit its debt limit. In February 2010, Congressagreed to raise the debt ceiling on the conditionthat President Obama task a group of current andformer lawmakers and budget experts to evaluateour fiscal problems and construct a comprehensivesolution that could be considered by Congress. Asa result, the National Commission on Fiscal Responsibilityand Reform—or the so-called “Bowles-Simpson Commission,” named after its co-chairsErskine Bowles and Alan Simpson—was born.The Commission’s December 2010 report, entitled“The Moment of Truth,” contained a series of illustrativeproposals aimed at reducing our nationaldebt by more than $4 trillion through 2020. Whyis this so compelling for life insurance agents? Well,one proposal sought to modify or eliminate all taxexpenditures, which are deviations from normal incomeand corporate income tax treatment. Amongthe hundreds of tax expenditures recognized by theCongressional Joint Committee on Taxation (JCT)This past summer, and for thesecond time in 18 months, theU.S. hit its debt limit.is the tax-deferred growth of life insurance insidebuild-up and the tax-free death benefits providedby these policies. The JCT projects that nearly $150billion could be raised over five years by eliminatingthese specific tax provisions from the InternalRevenue Code. This means that, at least from arevenue perspective, the tax treatment of life insuranceproducts is one of the most appealing taxexpenditures on the books for fiscal hawks seekingto reduce our soaring debts. And the Bowles-Simpson proposal is just one of dozens that havebeen floated in Washington containing vague andimprecise changes to tax expenditures. The bottomline is straightforward—the preservation of theseprovisions for the benefit of the 75 million Americanfamilies that rely on life insurance for financialprotection and retirement savings will require widespreadand proactive political engagement from allof the industry’s stakeholders.what now?Congress never faced their “moment of truth” followingthe release of the “Bowles-Simpson” report.Despite a majority agreement among the 18Commission members, no vote was taken in eitherchamber. This past summer, as we reached our$14.3 trillion debt limit, Congressional leaders andthe White House negotiated through fits and startsin an effort to avoid facing the prospect of defaultFALL 2011 | The Wealth Channel Magazine | 125

continued from page 124regulation updatesand the economic and market-based ramifications that were expected to follow.In the end, an agreement to raise the debt ceiling was reached and approvedby Congress in an overwhelmingly bipartisan manner. However, don’t let thebipartisan support fool you—while the Budget Control Act of 2011 will save$1.2 trillion through discretionary budget caps, much of the deficit reductionwas left up to a Super Committee of Congress to decide, which means therewill continue to be partisan gridlock on the best approach towards controllingour long-term structural debt.While the August 2, 2011, debt ceiling deadline came and went withouta domestic debt crisis, the mechanics of the Budget Control Act will ensurethat addressing our fiscal problems will remain the top priority in Washingtonfor the remainder of 2011 and well into 2012. The biggest question over thenext several months will be, “What will the Super Committee do?” Despitecontinued calls for the implementation of pro-growth tax and fiscal policiesamid a worsening economic landscape and volatile financial markets, ongoingpolitical divides coupled with the strict timeline on which the Committeewill be working makes enacting any big-ticket reforms (comprehensive tax orentitlement reform) very unlikely. That said, the pressure on this Committeewill be great, and the January 15 trigger—$1.2 trillion in domestic discretionaryand defense department cuts—will be something that both parties willaim to avoid. In any event, what we know is that momentum for tax reform isbuilding. Whether the Super Committee takes up the task or Congress waitsuntil 2013 to do so, the life insurance industry must be prepared when theday does come. This is where the direct advocacy has proven to be so effective.putting our model to workThis summer’s debt showdown is only one step in the contentious process ofestablishing fiscal stability. The byproduct is and will continue to be a fluidand unpredictable environment that mandates active, diligent engagementby practitioners and the industry to guard against any possible tax threat.These would include not only the aforementioned threat to inside build-upand death benefits, but also possible threats to business uses of life insuranceproducts. Additionally, it is worth noting that while much of the rhetoricaround the Budget Control Act trended away from imposing higher taxes oreliminating certain tax preferences, over the long-run—and particularly inthe context of comprehensive tax reform—significant changes to the tax code,especially in the area of tax expenditures, are likely to be much more palatablefor members of both parties. The environment may seem slightly muddled,but that we are facing an indefinite and dynamic tax challenge is clear.The insurance industry’s tax threats will not soon disappear. Any debt reductionagreement reached in the coming weeks and months will only bea down payment towards effectively reversing current unsustainable fiscaltrends, and a broad tax reform effort may also be in our future. Put simply, aslong as revenues are in demand, changing the tax treatment of life insuranceproducts will always be on the table. Standing on the sidelines is really not anoption.Washington Surprise: A Glimmerof Agreement in the FiduciaryWrangle?participants who are seeking professionaladvice.The fundamental issue is the same asin the SEC debate: the “fiduciary” conceptmay sound appealing, but withoutcareful attention to the way consumersaccess advice and the business modelsthat make that advice readily available,consumers at the lower end of the investmentspectrum could be harmed—especially those with IRAs. Less accessto professional advice and products is acritical concern when families are facingsignificant retirement income shortfallsover the coming decades.Finally, following wave after wave ofprotests from virtually every quarter, theDOL is backing down. They’ve agreedto re-propose their rule sometime earlynext year, hopefully in a more acceptableform that does less harm to consumers.where do we go from here?As the debt and deficit discussions continuein Washington, the SEC has slowedsomewhat their work on the fiduciaryissue because of the emerging complexityof their regulatory challenge, limitedresources, and the pursuit of (at last!) astronger cost/benefit analysis. They haveindicated that they will study the potentiallynegative impact to consumers oftheir staff proposal, but it is unclear howextensively they might apply their limitedresources to that important work.Congress recently held hearings thattouched on these important issues – withfewer of the same tired groups chantingthe word “fiduciary” while offering nosupporting consumer benefits or analysisof potential consumer harm. The testimonyand dialogue began to generate agreater understanding of the real issuesat play for middle-income investors.Good intentions have never protectedconsumers. Well-reasoned public policycan, and there’s a glimmer of hope nowthat more nuanced and practical thinkingmay ultimately prevail.126 | The American College | FALL 2011

OCTOBER 2011NOV 2011calendar17-12/15 LIVE ONLINE – Essentials of Business Insurance FA 251W20-1/12 LIVE ONLINE – Financial Statements & Business Valuation GS 80320-23 FINANCIAL PLANNING EXPRESS SESSION – Philadelphia AreaMarch 2012 Exam Prep21 IRP (Live Course) STATE FARM – Planning for Retirement NeedsHS 326 - Bloomington, IL21 IRP (Live Course) STATE FARM – Fundamentals of Estate PlanningHS 330 - Minneapolis, MN24-12/12 LIVE ONLINE – Essentials of Multiline Skills FA 222W24-12/12 LIVE ONLINE – Foundations of Estate Planning FA 271W25- 12/13 LIVE ONLINE – Foundations of Investment Planning FA 264W25 LIVE LOCAL – Building & Managing Financial Advisory PracticeGS 840 - AlabamaOCT27-12/15 LIVE ONLINE – Techniques for Prospecting FA 200W27-29 IRP (LIVE COURSE) MASSMUTUAL – Planning for RetirementNeeds HS 326 - Chicopee, MA1-29 LIVE ONLINE – Fundamentals of Insurance PlanningHS 311W3 IRP (LIVE COURSE) STATE FARM – InvestmentsHS 328 - State Farm NE Zone4 IRP (LIVE COURSE) STATE FARM Planning for Retirement NeedsHS 326 - San Antonio, TX4 IRP (LIVE COURSE) STATE FARM – Planning for BusinessOwners and Professionals HS 331 - Miami, FL4 IRP (LIVE COURSE) OPEN CLU (PA) – Financial Planning:Process and Environment-HS 300 - Philadelphia, PA4-6 CLU ® , ChFC ® & CFP ® Certification – Financial Planning: Processand Environment HS 300 - Chicago, ILNOV6 IRP (LIVE COURSE) MASS MUTUAL CFBS – Business SuccessionPlanning II GS 838 - St. David’s, PANOV 20117-12/26 LIVE ONLINE Foundations of Retirement PlanningFA 261W8-12/6 LIVE ONLINE Investments HS 328W10 Alumni Tour Event, Embassy Suites, Dallas - Frisco, TX10 IRP (Live Course) NEW YORK LIFE – Financial PlanningApplications HS 332 - NYL NE Zone - Sleepy Hollow14-1/ 2 LIVE ONLINE - Techniques Meeting Client NeedsFA 202W14-1/ 2 LIVE ONLINE – Essentials of Life Insurance ProductsFA 257W17-20 FINANCIAL PLANNING EXPRESS SESSION –Philadelphia Area March 2012 Exam PrepNOV21-1/ 9 LIVE ONLINE – Techniques Exploring Personal MarketsFA 201WDEC 20112 Alumni Tour Event - JW Marriott, Washington, D.C.2 President’s Dinner - National Museum of AmericanHistory, Washington, D.C.2-1/20 LIVE ONLINE – Marketing Financial Services to WomenFA 204W2 IRP (LIVE COURSE) STATE FARM – Individual LifeInsurance HS 323 - Bloomington, ILDEC9-12 FINANCIAL PLANNING EXPRESS SESSION -Philadelphia Area July 2012 Exam Prep19 IRP (LIVE EVENT) NC FARM BUREAU – InvestmentsHS 328 - Raleigh, NCJAN 201213-16 FINANCIAL PLANNING EXPRESS SESSION -Philadelphia Area March 2012 Exam Prep20-23 FINANCIAL PLANNING EXPRESS SESSION -Philadelphia Area July 2012 Exam PrepJAN20 IRP (LIVE EVENT) STATE FARM – Fundamentals ofInsurance Planning HS 311 - Southern Zone/Duluth, GAfor additional information on these programs please call (888) 263-7265 ore-mail us at alumni@theamericancollege.edu

the last wordby Chris Naylor, Indiana Securities CommissionerHow to Best Serve and ProtectYour Senior ClientsChris NaylorChris serves as theIndiana SecuritiesCommissioner,supervising theenforcement,registration,corporation financeand investoreducation sections ofthe Indiana SecuritiesDivision, as wellas the ProsecutionAssistance Unit(PAU). Naylor alsoserves on the Boardof Trustees of theInvestor ProtectionTrust and the NASAABroker-DealerSection Committee.Nearly 40 million Americans are 65or older, and this number is expectedto increase dramatically to roughly89 million by 2050. As a result, financialservices professionals mayfind themselves with a growing numberof senior clients in the comingyears. Financial advisors and plannersshould familiarize themselves withthe unique needs of senior investorsand take the necessary steps to effectivelyserve and protect these valuedclients.In recent years, the Securityand Exchange Commission (SEC),FINRA and the North AmericanSecurities Administrators Association(NASAA) have collaborated todevelop several best practices policiesand suggestions that financial servicesfirms can adopt to better serve theirsenior investors. As an initial step,firms should examine their existingproducts and review their appropriatenessfor senior investors. In someinstances, it may be appropriate toestablish age-based restrictions to ensuresenior clients are not sold productsthat are not suitable for theirinvesting goals and objectives.Firms should also re-evaluate seniordesignations of their plannersand/or advisors to make sure thatanyone with a designation related tosenior citizens has received legitimatetraining and is not using misleadingor nonsensical titles. Many state securitiesregulators have limited the useof senior designations, so it is essentialto be aware of which designationshave appropriate academic or othertypes of accreditation and meet all ofthe standards established by the securitiesregulators in your state.Clear communication is crucial toany successful client-advisor relationship.Senior investors may requiremore attention and frequent contactfor you to stay updated on lifechanges impacting their financial situation,including health problems. Itcan also be helpful to send follow-upletters clearly outlining what was discussedin meetings or phone calls toensure the investor fully understands.Additionally, firms should avoid financialjargon and provide largerfontversions of marketing materialsand other written documentsIn addition to examining policiesand products and improving communication,financial services professionalshave a responsibility to recognizeif and when a senior investor’smental capacity is declining. Seniorswith mild cognitive impairment,such as Alzheimer’s or dementia, maylack the ability to fully understand aninvestment product or to provide informedconsent. In these situations,firms may need to take preventativemeasures to reduce liability and ensurethe senior’s best interests arebeing met. These measures could includecontacting a family member orthe person designated as a power ofattorney.Recent studies show that seniorswith mild cognitive impairmenthave an increased vulnerability toinvestment fraud and/or financial exploitation.In fact, one in five olderAmericans say they have experiencedfinancial exploitation or have beentargeted by someone trying to defraudthem of their hard-earned savings.Because seniors have greater vulnerabilityand have less time to recovertheir losses than younger investors,it’s important to take proactive stepsto protect them from fraud. Financialservices professionals should regularlyask their senior clients if they’ve beencontacted by anyone offering theman investment opportunity, either inperson,via the phone or online. If itlooks like fraud, explain to them why.In the event the client falls victim toan investment scam, the state securitiesregulator is the point of contactto report those scams.Also keep in mind that some casesof financial abuse or exploitation areperpetrated by a family member orperson in a position of trust. Thisperson may try to isolate the seniorinvestor and prevent him or herfrom directly communicating witha financial representative. Evidenceof suspicious activity may include achange of mailing address to an unfamiliar,unexplained address; a suddenchange in the power of attorney; and/or unexplained financial transactions.Adult Protective Services is availableto help those who may have sufferedfinancial abuse.As the number of seniors increaseseach year, financial services professionalsand firms need to be awareof the unique intricacies of workingwith senior investors. Firms shouldclosely examine policies, productsand designations; take steps to improvecommunication; and be vigilantabout seniors’ increased vulnerabilityto fraud and financial abuse.To read the full report on bestpractices for working with senior clients,and to find contact informationfor your state securities regulator, visitnasaa.org. To learn more about theIndiana Securities Division’s effortsto educate and protect senior investors,visit IndianaInvestmentWatch.com.128 | The American College | FALL 2011

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